Question 1

A famous quarterback just signed a $9.2 million contract providing $3.4 million a year for 4 years. A less famous receiver signed a $8.2 million 4-year contract providing $3 million now and $2.9 million a year for 4 years. The interest rate is 8%.

a)

What is the PV of the quarterback's contract? (jn millions)

b) What is the PV of the receiver's contract?

Question 2

British government 4.9% perpetuities pay 4.9 interest at the end of each year forever. Another bond, 3.4% perpetuities, pays 3.40 a year forever.

a)

What is the value of 4.9% perpetuities if the long-term interest rate is 6.9%?

b) What is the value of 3.40% perpetuities?

Question 3

Banks sometimes quote interest rates in the form of add-on interest. In this case, if a 1-year loan is quoted with a 19.0% interest rate and you borrow $1,000, then you pay back $1,080. But you make these payments in monthly installments of $90 each.

a)	What is the true APR on this loan? b)What is the effective annual rate on the loan? (