Please solve the following questions step-by-step.

1.Today you opened up a local bank account. Your plan is make five $2,000 contributions to this account. The first $2,000 contribution will occur today and then every six months you will contribute another $2,000 to the account. (So your final $2,000 contribution will be made two years from today). The bank account pays a 6 percent APR compounded monthly. After two years, you plan to leave the money in the account earning interest, but you will not make any further contributions to the account. How much will you have in the account 8 years from today?

2. Your employer has agreed to make 80 quarterly payments of $800 each into a trust account to fund your early retirement. The first payment will be made by the employer 3 months from now. At the end of 20 years (80 payments), the retirement fund will be used to pay you 10 equal annual payments, with the first payment to be made at the beginning of Year 21 (or the end of Year 20). The funds will be invested at a nominal rate of 8 percent APR, quarterly compounding, during both the accumulation and the distribution periods. How large will each of your 10 receipts be?

3. If a project has a net present value equal to zero, then:

I. the present value of the cash inflows exceeds the initial cost of the project. II. the project produces a rate of return that just equals the rate required to accept the project. III. any delay in receiving the projected cash inflows will cause the project to have a negative net present value.

Note: Assume interest rate > 0

4. Which of the following statements is most correct?

(Assume all relevant interest rates are positive)

A. If a projects internal rate of return (IRR) exceeds the cost of capital, then the projects net present value (NPV) must be positive.

B. If Project A has a higher IRR than Project B, then Project A must also have a higher NPV.

C. The IRR calculation implicitly assumes that all cash flows are reinvested at a rate of return equal to the cost of capital.

D. Statements a and c are correct.

E. None of the statements above is correct.

4. Which of the following statements is most correct?

(Assume all relevant interest rates are positive)

A. If a projects internal rate of return (IRR) exceeds the cost of capital, then the projects net present value (NPV) must be positive.

B. If Project A has a higher IRR than Project B, then Project A must also have a higher NPV.

C. The IRR calculation implicitly assumes that all cash flows are reinvested at a rate of return equal to the cost of capital.

D. Statements a and c are correct.

E. None of the statements above is correct.

5. Your company is choosing between the following non-repeatable, equally risky, mutually exclusive projects with the cash flows shown below. Your cost of capital is 10 percent. How much value will your firm sacrifice if it selects the project with the higher IRR?

Project S: 0 1 2 3

| | | |

-2,000 1,000 1,000 1,000

Project L: 0 1 2 3 4 5

| | | | | |

-4,000 1,300 1,300 1,300 1,300 1,300

6.Martin Fillmore is a big football star who has been offered contracts by two different teams. The payments (in millions of dollars) he receives under the two contracts are listed below:

Team A Team B

Year Cash Flow Cash Flow

0 $8.0 $3

1 4.0 4.0

2 4.0 4.0

3 4.0 8.0

4 4.0 8.0

Fillmore is committed to accepting the contract that provides him with the highest net present value (NPV). At what discount rate would he be indifferent between the two contracts?

7. Martin Fillmore is a big football star who has been offered contracts by two different teams. The payments (in millions of dollars) he receives under the two contracts are listed below:

Team A Team B

Year Cash Flow Cash Flow

0 $8.0 $3

1 4.0 4.0

2 4.0 4.0

3 4.0 8.0

4 4.0 8.0

Fillmore is committed to accepting the contract that provides him with the highest net present value (NPV). At what discount rate would he be indifferent between the two contracts?