2. Jeannette has decided to contribute to a personal pension plan. The plan calls for her to make monthly payments of $300 starting one month from today. The brochure describing the plan indicates that the pension contribution are invested in a portfolio that earns an effective rate of return of 12% per year and that this return is expected to continue until she retires. Jeannette plans to contribute to the plan for 30 years, and immediately following payment of her last pension contribution, intends to retire. As a result of pension legislation, when Jeannette retires, her lump sum pension fund must be transferred to a safer portfolio earning a different rate of interest. Her new pension fund will begin sending her monthly pension cheques starting one month after her retirement date. If Jeannette expects to receive pension cheques of $7,500 per month for thirty-five years after retirement, what minimum rate of interest (expressed as an effective annual rate) must the new pension fund earn? 3 The present value of an annuity using an effective annual discount rate of 12% is $40,043.69. This annuity consists of 9 annual payments with the first four payments being $8,000 each starting today. Determine the value of each of the next five payments, assuming they are of equal size. 4. An interest rate of 12% per year compounded quarterly is the same as a) 3% per quarter compounded quarterly. b) An effective annual rate of 12.550881%. c) 6.09% per 6 months compounded semi-annually. d) 16.12222469% per year compounded every five years. e) All of the above. f) Only (a) and (b) above. g) Only (a), (b) and (c) above. 6. CDQ Products Inc. has decided that its dividend policy should reflect company growth. They indicate that the first quarterly dividend they intend to pay will be $0.80 per share 3 years from today. Quarterly dividends will then increase at rate of 2% per quarter until the end of the 6th year and then grow at 1.2% per quarter thereafter. What share price should you pay for such a stock if you expect an effective annual return of 15% per year? 7. You have just won a lottery that offers the following payouts: 15 payment of $10,000 in eight months and payments of $10,000 every three months thereafter until a total of 40 payments have been made. Given a discount rate of 17% per year (effective), what is the value to you now of the promised cash flow in the future? 9. Calculate the present values of each of 15 annual cash flows with the first payment of $11,000 today, and each subsequent payment 8% greater than the previous payment. Assume an effective annual discount rate of 14%. 10. A government has issued 7.2% coupon bonds with semi-annual coupons and 22 years to maturity. If the yield-to-maturity for the bonds is quoted at 7.5% per year (compounded semi-annually), compute the price of a $1,000 face value bond