Explain why cash flows occurring at different times must be adjusted to reflect their value as of a common date before they can be compared, and calculate the present value and future value for multiple cash flows. (3 Marks)

Answer:

B. Describe how to calculate the present value and the future value of an ordinary annuity and how an ordinary annuity differs from an annuity due. (3 Marks)

C. Explain what perpetuities are, where we see them in business, and calculate the present values of perpetuities? (2 Marks)

D. Discuss why the effective annual interest rate (EAR) is the appropriate way to annualise interest rates, and calculate EAR. (2 Marks)