1.Calculate the difference between the present value of $200 per year cash payments for the next 40 years and the present value of $200 per year cash payments in perpetuity. Assume in either case, the first payment occurs one year from today and that the appropriate discount rate is 8%/year. The difference in the present value of these two streams of future cash payments that you calculated equals the present value of cash payments over what period of time?

2. What is the present value of the following series of cash payments: $8,000 per year for four consecutive years starting one year from today, followed by annual cash payments that increase by 2% per year in perpetuity (i.e. cash payment in year 5 is $8,000*1.02, cash payment in year 6 is $8,000*1.022, etc.)? Assume the appropriate discount rate is 5%/year.

3. Use Goal Seek in Excel, to solve for the yield to maturity (market rate of return) on a corporate bond with a coupon rate of 4% per year, a maturity of 20 years, and a market value (price) of $1,210. Assume semi-annual coupon payments and a maturity payment of $1,000 per bond.