Please show and submit your work for all problems. All problems assume compound interest unless stated otherwise.

1. Assume interest rates are 5.25%, which offer would you take?
   1. Offer A: $4,500, 4 years from now.
   2. Offer B: $4,600, 5 years from now.
2. You have just received notification that you have won the $2 million first prize in the California lottery. However, the prize will be awarded on your 100^th birthday, 80 years from now. What is the present value of your windfall if the appropriate discount rate is 9.1%?
3. What is the mathematical relationship between simple and compound interest? You can answer with a general explanation with words, or you can use a scenario you create on your own to show the answer. For example, pick an investment amount, and interest rate, and a period of time and solve for both types of interest. Explain how and why the simple and compound interest are different.
4. I will need to buy a new car in 7 years. I plan to save $15,000 dollars starting today. Interest rates at my bank are 6%. Which car can I buy?
5. Assume car prices in 7 years will be

• • New Corolla L= $21,000
  • Used Lexus IS 250 = $25,250
  • New Kia Sportage = $25,990

1. You need to buy a new laptop next year. The price will be $2760. If you invest $2500 today in a 1-year certificate of deposit that pays 2% annually, will you have enough principal plus interest to buy the laptop next year?
2. What interest rate do you need to earn to double your money if 5 years if you plan to invest $795 today?
3. Which investment opportunity has a higher implied rate of return?
   1. Opportunity A = invest $1250 today, and get paid $1795 eight years from now
   2. Opportunity B = invest $705 today, and get paid $810 three years from now
4. If interest rates are high, are discounted future payments lower or higher than when interest rates are low? Explain.
5. How long will it take for you to quadruple your investment if you invest $600 today at 5% interest rate?
6. When interest rates are very low, less than 1%, it takes a short amount of time to reach a desired future value. True or false? Explain.
7. Your professor offers you a contract that will pay you these cash flows–$675 next year, $560 in two years, and $290 in 3 years. The prevailing interest rate is 5.6%. What is the maximum amount you should be willing to pay for this contract?
8. Starting this year, you are planning to make annual deposits of $1,025 into a retirement account that pays 4.75% interest annually. How large will your retirement account be in 40 years?
9. Investment A offers to pay you $5,300 per year for eight years, and Investment B offers you $7,300 for five years. Which Investment has a higher present value if the discount rate is 5%.
10. If we increase the length of time involved, what happens to the present value of an annuity? Please explain.
11. What is the value today of $5,500 per year, at a discount rate of 8.5%, if the first payment is received 6 years from now and the last payment is received 25 years from today?
12. Given the following information, compute the missing value for each row:

Present value	Years	Interest Rate	Future Value
$8,752	7	8%
	6	7%	$15,451
$240	2		$297
$560		9%	$1,284

1. You are scheduled to receive $20,000 in two years. When you receive it, you will invest it for 12 more years at 4.75% per year. How much will you have in 12 years?
2. Walmart has unfunded pension liability of $575 million that must be paid in 20 years. To assess the value of the firm’s stock, financial analysts want to discount this liability back to the present. If the relevant discount rate is 4.8%, what is the present value of this liability?
3. We cannot determine the present value of uneven future cash flows. True or False? Explain.
4. Why do corporate finance practitioners often refer to the interest rate as the discount rate? Are both rates the same number? Explain.

Requirements: questions