If the present value of $280 paid one year from now is $250, what is the one-year discount factor?

*Make sure to input all currency answers without any currency symbols or commas, and use two decimal places of precision.

Question 2

If the present value of $400 paid one year from now is $320, what is the one-year interest rate? (Note: this number is also known as the discount rate.)

*Make sure to input all percentage answers as numeric values without symbols, and use two decimal places of precision. For example, if the answer is 6%, then enter 0.06.

Question 3

Lara Beal allocates wealth between two periods: youth and old age. Currently (in her youth) she has $8,000 in cash. She can lend and borrow at the bank at 15% (that is, lending $1 in youth will give her $1.15 in old age). Her only investment opportunity other than the bank is a project that costs $5,000 now in her youth and has a payoff of $6,000 in her old age. What is the most she can consume in her old age?

*Make sure to input all currency answers without any currency symbols or commas, and use two decimal places of precision.

Question 4

James Bennett also allocates wealth between youth and old age. He has no cash currently (in his youth), but will inherit $3000 in his old age. He can lend and borrow at the bank at 18% (that is, lending $1 in youth will give him $1.18 in old age). He has an investment opportunity that costs $12,000 now in his youth and has a payoff of $15,000 in his old age. This is the only investment opportunity available to him. What is the most he can consume in his youth?

*Make sure to input all currency answers without any currency symbols or commas, and use two decimal places of precision.

Question 5

Which of the following investments do you prefer?

(a) Purchase a bond with a single payment of $1000 in ten years, for a price of $550.

(b) Invest $550 for ten years in PNC Bank at a guaranteed annual interest rate of 4.5%.

(a) Purchase a Bond

(b) Invest with PNC Bank

Question 6

You have just applied for a 30-year $100,000 mortgage at a rate of 10%. What must the annual payment be?

*Make sure to input all currency answers without any currency symbols or commas, and use two decimal places of precision.

Question 7

Suppose you are given a choice of the following two securities:

(a) an annuity that pays $10,000 at the end of each of the next 6 years;

or (b) a perpetuity that pays $10,000 forever, but the first cash payment is 11 years from today.

Which security do you choose if the annual interest rate is 5%?

(a) an annuity that pays $10,000 at the end of each of the next 6 years

(b) a perpetuity that pays $10,000 forever, but the first cash payment is 11 years from today

Question 8

Assume the annual interest rate is 6%. Calculate the value of an investment that pays $100 every two years, starting two years from now and continuing forever.

*Make sure to input all currency answers without any currency symbols or commas, and use two decimal places of precision.

Question 9

Suppose money invested in a hedge fund earns 1% per trading day. There are 250 trading days per year. What will be your annual return on $100 invested in the fund if the manager allows you to reinvest in the fund the 1% you earn each day?

*Make sure to input all currency answers without any currency symbols or commas, and use two decimal places of precision.

Question 10

Suppose money invested in a hedge fund earns 1% per trading day. There are 250 trading days per year. What will be your annual return assuming the manager puts all of your daily earnings into a zero-interest-bearing checking account and pays you everything earned at the end of the year?

*Make sure to input all currency answers without any currency symbols or commas, and use two decimal places of precision.