16)

You have a sub-contracting job with a local manufacturing firm. Your agreement calls for annual

payments of $50,000 for the next five years. At a discount rate of 12%, what is this job worth to you

today?

17)

As an excellent student in environmental ecology, you have been awarded the "Clean Effluent

Prize" by a state agency. You (or your estate) could receive $300 forever from the state or $400 for the

next 25 years. Payments are to be received annually. If the market rate of interest is 6%, what is the

value of the two options respectively?

18)

You are comparing two investment options. The cost to invest in either option is the same

today. Both options will provide you with $20,000 of income. Option A pays five annual payments

starting with $8,000 the first year followed by four annual payments of $3,000 each. Option B pays five

annual payments of $4,000 each. Which one is better?

19)

If you have a choice to earn simple interest on $10,000 for three years at 8% or compound

interest at 7.5% for three years which one will pay more and by how much?

20)

What is the end value of investing $9,000 for 7 years at a continuously compounded rate of

11%?

21)

You are to receive $75 per year indefinitely. The market rate of interest for these types of

payments is 8%. The price you would pay for this stream is?

22)

Luis has a management contract that grants him a lump sum payment of $20 million is paid

upon the completion of his first five years of service. The company wants to set aside an equal amount

of funds each year to cover this anticipated cash outflow. The company can earn 4.5 percent on these

funds. How much must the company set aside each year for this purpose?

23)

Charles Carr borrowed $3,500 to consolidate his debts. Since Charles had an excellent credit

rating, he was able to borrow at a 12% effective annual rate. Charles is required to make monthly

payments. Charles will make equal payments for the next 36 months. What are his monthly payments?