1.To the closest year, how long will it take a $200 investment to double if it earns 7 percent interest? How long will it take if the investment earns 18 percent? 2. An investor can buy a security at a price of $78.35 that will pay $100 after five years. What rate of retum will s/he earn if he purchases the security? 3. Frank Wade knows that a security will provide a return of 10 percent per year, it will cost $68.30, and he will receive $100 at maturity. In how many years does the security mature? 4. Alex Bradford wants to start his own business in 12 years, and he plans to save funds to invest in the business. He has determined that he can save $10,000 per year for 12 years at 8.5 percent interest. If the first $10,000 deposit isn't made until one year from today, how much money will he have in 12 years when he starts his business? How much would he have if he deposits the first $10,000 today? 5. Katherin Lee is considering an investment that pays $15,000 per year for 20 years and opportunity cost is 9.5 percent interest. If she doesn't receive the first $15,000 payment until one year from today, what is the most she should be willing to pay for the investment? How much would she be willing to pay if she receives the first $15,000 payment today? 6. Find the present values of the following cash flow streams under the following conditions: Year Cash Stream A Cash Stream B 1 2 $100 S300 400 400 3 400 400 300 4 100 a. The appropriate interest rate is 8 percent. Page 1 of 2 7. What is the present value of perpetuity of $100 per year if the appropriate discount rate is 7 percent? If interest rates in general were to double and the appropriate discount rate rose to 14 percent, what would happen to the present value of the perpetuity? 8. Find the effective annual rate if the simple interest rate is 6 percent and interest is paid semiannually. 9. The First City Bank pays 7 percent interest, compounded annually, on time deposits. The Second City Bank pays 6.5 percent interest, compounded quarterly. a. Based on effective interest rates, in which bank would you prefer to deposit your money? 10. ABC Inc. just borrowed $25,000. The loan is to be repaid in equal installments at the end of each of the next five years, and the interest rate is 10 percent. a. Set up an amortization schedule for the loan.