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Question(s) / Instruction(s):

1. What is the relationship between discounting and compounding? 2. What is the relationship between PVIF i,n and PVIFA i,n? 3. a. What will $5,000 invested for ten years at 8% compounded annually grow to? b. How many years will it take $400 to grow to $1,671, if it is invested at 10% compounded annually? c. At what rate would $1,000 have to be invested to grow to $4,046 in ten years? 4. Calculate the future sum of $1,000, given that it will be held in the bank for 5 years and earn ten percent compounded annually. 5. What is an annuity due and how does it differ from an ordinary annuity? 6. What is the present value of an ordinary annuity of $1,000 per year for 7 years discounted back to the present at 10%. What would be the present value if it were an annuity due? 7. What is the future value of an ordinary annuity of $1,000 per year for seven years, compounded at 10%? What would be the future value if it were an annuity due? 8. What is the present value of a $1,000 perpetuity discounted back to the present at 8% 9. What is the present value of a $1,000 annuity for ten years with the first payment occurring at the end of year 10 (that is, ten $1,000 payments occurring at the end of year 10 through year 19) given a discount rate of 10% 10. Given a 10% discount rate, what is the present value of a perpetuity of $1,000 per year if the first payment does not begin until the end of Year 10. 11. What is the effective annual rate, EAR, for a bank loan compounded quarterly. The loan has an annual APR of 8%.

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