Problems 1. What is the present value of the following cash-flow stream if the interest rate is 6%? Year Cash Flow 1 $200 2 400 3 300 2. A local bank will pay you $100 a year for your lifetime if you deposit $2,500 in the bank today. If you plan to live forever, what interest rate is the bank paying? 3. (a) What is the present value of a 3-year annuity of $100 if the discount rate is 6%? (b) What is the present value of the annuity in part (a) if you have to wait 2 years instead of 1 year for the first payment? 4. You can buy a car that is advertised for $24,000 on the following terms: (a) pay $24,000 and receive a $2,000 rebate from the manufacturer; (b) pay $500 a month for 4 years for total payments of $24,000, implying zero percent financing. Which is the better deal if the interest rate is 1% per month? 5. (a) If you borrow $1,000 and agree to repay the loan in five equal annual payments at an interest rate of 12%, what will your payment be? (b) What will your payment be if you make the first payment on the loan immediately instead of at the end of the first year? 6. You believe you will spend $40,000 a year for 20 years once you retire in 40 years. If the interest rate is 6% per year, how much must you save each year until retirement to meet your retirement goal? 7. If you take out an $8,000 car loan that calls for 48 monthly payments of $240 each, what is the APR of the loan? What is the effective annual interest rate on the loan