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Homework 2 1. Find the Future values of $100 with interest 5% from period 1 to 10. FV N 2 Interest 5% 5% 5% 5% 5% 5% 5% 4 5 OOOOOO PV 100 100 100 100 100 100 100 100 100 100 7 8 5% 5% 10 5% 2. Assume that an investor invested $200,000 today and expected to double her investments. Her rate of return expectation is 5% per year. How many years would it take to achieve her goal? Hint: find N. 3. Arookie NBA player now is facing his first NBA contract. There are three offers given to him as shown below. Let's assume that his opportunity cost is 6%. As his advisor, which contract would you recommend to your client? Hint: find PV. Period 1 2 3 4 5 Pelicans $300,000 $300.000 $300,000 $300,000 $300,000 Lakers $150,000 $250,000 $350,000 $450,000 $550.000 Warriors $400,000 $350,000 $300,000 $250,000 $200,000 4. Find future value (FV) of these ordinary annuities. Compounding occurs once a year. a $500 per year for 8 years at 14% b. $250 per year for 5 years at 7% c. $700 per year for 3 years at 0% d. If part a, b, and care assuming to be annuity due, what would be their FVs? 5. You just won the lotteryill, and the lottery company gives you several options to get your reward Option 1: Lump-sum today of $62,000,000 Option 2: 10 end-of-year payment of $9,500,000 Option 3: 30 end-of-year payment of $5,600,000 Answer the following questions, a. If you can earn 8% annually, which should you choose? b. you expect to earn 9% annually, which is the best choice? c. Explain how interest rates influence your choice

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