Chapter 9- Problems 9.1, 9.2, 9.4, and 9.6

9.1 Find the following values for the lump sum assuming annual compounding:

The future value of $500 invested at 8 percent for one year.

The future value of $500 invested at 8 percent for five years.

The present value of $500 to be received in one year when the opportunity cost rate is 8 percent.

The present value of $500 to be received in five years when the opportunity cost rate is 8 percent.

9.2 Repeat Problem 9.1 above, but assume the following compounding conditions:

a. Semiannual

b. Quarterly

9.4 Find the following values assuming a regular, or ordinary, annuity:

a. The present value of $400 per year for ten years at 10 percent.

b. The future value of $400 per year for ten years at 10 percent.

c. The present value of $200 per year for five years at 5 percent.

d. The future value of $200 per year for five years at 5 percent.

9.6 Consider the following uneven cash flow stream:

Year Cash Flow

0 $0

1 250

2 400

3 500

4 600

5 600

a. What is the present (Year 0) value if the opportunity cost (discount) rate is 10 percent?

b. Add an outflow (or cost) of $1000 at Year 0. What is the present value (or net present value) of the stream?