PART 1: ANNUITIES AND PERPETUITIES EAR=[1+mAPR]m1FV=PV(1+r/m) PV=FV/(1+r/m) m= compounding frequency, t= number of years, r=APR or stated rate 1. (1PT) PV ANNUITY, Congratulations. You just won the Florida Lotteryl You are given two options on how to recelve your payout. You believe that a 5% annual return is appropriate. Which option would you choose and why. Hint: You need to make these offers comparable by calculating the PV (or FV) of both offers. OPTION 1: $450,000,000 paid in even installments of $15,000,000 at the end of every year. OPTION 2: $281,874,999 paid in cash today. 2. (Ipt) APR vs. EAR. The going rate on student loans is quoted at 8% APR. The terms of the loan call for monthly payments (so monthly compounding). What is the effective annual rate (EAR) on that loan? 3. (1pt) PV ANNUITY. You are investing in an annuity vehicle that will payout $500 every 6 months at the end of the month for the next 10 years. if you use 6% APR compounded semt-annually what would you be willing to pay for this today? 4. (1pt) PV ANNUITY. You can afford $3,500 each month for mortgage payments. If the bank is charging 3.38 compounded monthly for a 30 year fixed rate loan, how much can you borrow for yout house? Note: mortgages are annuity dive so use BEG mode. 5. (1pt) PV GROWING PERPETUITY. A company lust pald a $5.25 annual dividend on their preferred stock. They plan on growing the dividend each year by 4%. A comparable imestment earns 8% annually. What is the price of the stock? Hint: need to find the next dividend first =C1 PART 2: UNEVEN CASH FLOWS 6. (1pt) UNEVEN CASH FLOWS. You are considering a business investment that will pay you $5,000 in Yr1,$10,000 in Yr2, and $15,000 in Yr3. 8% annual interest rate. Find the PV of those cash flows. 7. (1pt) Christie, Inc. has identified an investment project with the following cash flows. If the interest rate rate is 6%, with is the present value of those cash flows? - CFYear 1=$1,075 - CFYear 2 = \$1,210 - CFYear 3=$1,340 - CFYear 4=$1,420 8. (1pt) What is the future value of those cash flows from the previous problem using. 6% as the interest rate? 9. (2pts) Investment X offers to pay you $5,300 per year for 8 years, then $2,000 for 2 years. Investment Y offers to pay you $7,300 for 5 years, then $1,500 for 4 years. Which of these cash flows has the higher present value if you use a 7% interest rate