1. Compute the Present Value of US$100.00 to be received in 10 years using each of a discount rate of 8.00% and 4.00%.

2. Compute the Present Value of US$100.00 to be received in 20 years using each of a discount rate of 8.00% and 4.00%.

3. Compute the Future Value of US$100 received now using a simple interest rate of 10% per year, or a compound interest rate of 8% per year.

4. What is the Effective Annual Rate (EAR) for an investment that generates a return of 5.00% per month? What semi-annual rate of return will generate the same EAR as a 5.00% monthly interval return?

5. The nominal interest rate is 6.00%, and the rate of inflation is 3.00%. What is the real rate of return? What exactly does the real rate of return measure?

Clarifications:

Set N=20 in Question 3.

For Question 5

Let r = real rate; i= nominal interest rate; and I= inflation rate.

r=(1+i)/(1+I)-1