Q1. What must the prevailing interest rate be if you are indifferent between a $1000 return in two years and a $841 return in 1 year? (Report interest rate as a decimal. i.e. 10% interest rate = .1)

Q2. A stock costs $25 today. It will pay two dividends of $0.5 in 6 months and in 1 year. If the prevailing interest rate is 5%, what must the stock price be equal to or greater than at the end of 1 year to make this a good investment (i.e. NPV = 0)

Q3. If you could pay for your mortgage forever, how much would you have to pay per month for a $1,000,000 mortgage, at a 6.5% annual interest rate? Work out the answer (a) if the 6.5% is a bank APR quote and (b) if the 6.5% is a true effective annual rate of return.

Q4. You need a 30-year, $200000 mortgage to purchase a house. At an interest rate of 8%, what will your monthly mortgage payments be?

Q5. You are tasked with valuing a company based solely on its expected future cash flows. Interest rates are currently 8%. If this company expects income of $500,000 next year (it is the end of year 0 or equivalently the beginning of the first year), growing at 6% each year until the end of the tenth year. Then, income growth is expected to slow to 1% forever after, what is the value of this company today, in thousands of dollars?