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Problem 1 - The following diagrams below show cash flow streams having zero net present value. Suppose that 2% is a one-period interest rate. Compute
Problem 1 - The following diagrams below show cash flow streams having zero net present value. Suppose that 2% is a one-period interest rate. Compute X in each case. Use the least number of compounding factors when possible. A) 5x 3x 0 1 2 3 4 5 6 500 500 B) 500 500 500 0 1 2 3 4 x x x x x 1.5X xx xx _ 1 2 3 4 100 100 Problem 2 - To offset the cost of buying a $75,000 house, a couple borrowed $12,500 from their parents at 6% nominal interest, compounded monthly. The loan from their parents is to be paid off in five years in equal monthly payments. The couple has saved $11,250. Their total down payment is therefore $12,500+ 11,250 = $23,750. The balance will be mortgaged at 9% nominal interest, compounded monthly for 30 years. Find the combined monthly payment (monthly payments to parents + monthly payments to bank against mortgage) that the couple will be making for the first five years. Problem 3 - Assume you were told to prepare a table of factor values (like those tables that we used in class) for calculating the present worth (ie, (P/A, g, i, n)) of a geometric gradient series. Determine the first three values (i.e., for n= 1, 2, and 3) for an interest rate of 10% per year and a rate of increase, g, of 4% per year. Problem 4 - If effective interest rate is 15% per year. Find the equivalent nominal interest rate if: 1. Compounding is every three months (quarterly) 2. Compounding is hourly 3. Compounding is continuously Note: Use 4 decimal points like 15.3542%
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