Please compute the following answers, this can be done on a financial calculator or Excel (which is recommended). Please select the single best answer / the answer closest to your result. 1 What is the NPV of the following annual cash flows, at an annual interest rate of 5%? Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 50.0 50.0 50.0 50.0 50.0 50.0 50.0 50.0 50.0 1050.0 2 What is the NPV of the following quarterly cash flows, at an annual interest rate of 4%? Quarter 1 Quarter 2 Quarter 3 Quarter 4 Quarter 5 Quarter 6 Quarter 7 Quarter 8 10.5 10.5 10.5 10.5 10.5 10.5 10.5 10.5 3 What is the annualized IRR of the following annual cash flows? Today Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 -100.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 110.0 4 What is the IRR of the following quarterly cash flows? Today Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 5 Qtr 6 Qtr 7 Qtr 8 Qtr 9 Qtr 10 -100.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 20.0 5 Your favorite company, The Red House Furniture Company, issues $100,000 of 10yr bonds. The bonds have a 5% annual coupon which it pays semi-annually (i.e. 2.5% every 6mo). If the bonds are priced at a yield-to-maturity of 4%, what is its PV? 6 You buy your first condominium (congrats!) and take out a $100,000 30yr mortgage. The mortgage has a stated annual interest rate of 6%. What is the monthly payment amount? 7 Regarding the mortgage in the previous question, a $100,000 30yr mortgage. If instead of paying an interest rate of 6% you found a mortgage offered at 5%, by how much would your monthly payment be lower? 8 You are offered an investment with an 8% annual interest rate, compounded quarterly. You invest $10,000. How much money do you have at the end of one year? 9 You invest $75,000 in a brewery, Hoppy Ending Pale Ale. The first year, you earn $10,000. The second year you earn $15,000. But, also in year two, you have to replace your fermentation tank, at a cost of $25,000. The third year you earn $20,000. The fourth year you earn $25,000. The fifth and final year you earn $30,000. At the end of year five, you sell the entire operation for $100,000. What was the annualized IRR of the project? 10 You invest $75,000 in a coffee shop, Espresso Patronium. The first year of operations, you earn $1,000 each month. The second year you earn $1,500/mo. The third year you earn $2,000/mo. The fourth year, $2,500/mo. The fifth and final year you earn $3,000 per month. At the end of year 5, you sell the business for $100,000. What was the annualized IRR of this project? 3 11 Your Auntie Ivanka is 65 and has just retired. She has savings of $250,000. She needs it to last for 30 years (everyone in your family mysteriously dies at exactly age 95). If you can achieve a 5% return, each and every year, how much can Ivanka spend each year such that at her death the money is completely used up? 12 You have taken a job out of UCCS. Your new employer, Globo Gym, offers a retirement plan with two choices. Option "A", you earn 2% every year. Or, option "B": through their partnership with a local hedge fund, you appear to earn twice that! The hedge fund will earn +7% the first year and -3% the second year, always. This is the pattern: +7% then - 3%. If you invest $100,000, for 40 years, what will be the ending wealth of option A? Of option B?