Chapter 5 1. Compute the present value (PV) of an annuity that pays $320 forever if the opportunity cost is 4 %. When the opportunity cost increases, do you think PV increases or decreases? 2. Kelsey just won the lottery, and she must choose among three award options .She can elect to receive a lump sum today of $62 million, to receive end-of-month payments of $0.8 million for 10 years or to receive end-of month payments of $0.47 million for 30 years. If she can earn 8 % annually (i.e., the discount rate is 8 % per year), which is the best choice based on the PV of the three award options? a) PV of 1t award option: b) PV of 2nd award option: N= VYR= PMT= FV= PV c) PV of 3rd award option N= VYR= PMT FV= PV= d) Which is the best choice for Kelsey? 3. Suppose the annual interest rate is 4%. a) What is the present value of the following uneven cash flow stream? b) What is the FV of these cash flows? 1 3 4 Years 4% 0 100 300 300 -50