1. Assume annual compounding.

1. How much do you need to invest today at 5% in order to produce $2500 in 4 years?
2. What is the present value of $2500 in 4 years if you discount the future cash at a rate of 5%?
3. What is the price of an asset which pays $2500 in 4 years if the discount rate applied by the market is 5%?

2. An asset pays $250,000 in three years. What is its value today assuming a 5% discount rate:

1. annual compounding
2. quarterly compounding

3. In the question above, what is the percentage change in price were the maturity extended to four years, annual compounding?