- Draw a timeline for (1) a $100 lump sum cash flow at the end of year 2, (2) an ordinary annuity of $100 per year for 3 years and (3) an uneven cash flow stream of -$50, $100, $275, and $50 at the end of years 0 through 3.
- Calculate the following:
- Future value of an initial $100 after 3 years assuming annual interest of 10%.
- Present value of $100 to be received in 3 years if the discount rate is 10%.
- If a company’s sales are growing at a rate of 20% per year, how long will it take for the sale to double?
- In order for an investment to double in 3 years, what interest rate must it earn?
- Using a timeline, show examples of an ordinary annuity and an annuity due.
- Calculate the future value of a 3-year ordinary annuity of $100 if the interest rate is 10%.
- Calculate the present value of a 3-year ordinary annuity of $100 if the discount rate is 10%.
- Redo calculations for steps 6 and 7 assuming an annuity is due.
- Calculate the present value of an uneven cash flow stream of $100 at the end of year 1, $300 at the end of year 2, $300 at the end of year 3, -$50 at the end of year 4 assuming a discount rate of 10%.
- Calculate the future value of $100 after 5 years under 12% annual compounding, semiannual compounding, quarterly compounding, and monthly compounding.
- Calculate the effective rate of interest for a nominal rate of 12% compounded semiannually, quarterly, and monthly.
- Will the effective rate ever equal the nominal rate? Explain your answer.
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