John Keene recently invested $2566.70 in a project that is promising ...

John Keene recently invested $2,566.70 in a project that is promising to return
12 percent per year. The cash flows are expected to be as follows:
End of Cash
Year Flow
1 $325
2 400
3 550
4 ?
5 750
6 800
What is the cash flow at the end of the 4th year?
1

You have just borrowed $20,000 to buy a new car. The loan agreement calls for
60 monthly payments of $444.89 each to begin one month from today. If the
interest is compounded monthly, then what is the effective annual rate on this
loan?
2

1. Your subscription to Jogger's World Monthly is about to run out and you have the choice of renewing it by sending in the $10 a year regular rate or of getting a
lifetime subscription to the magazine by paying $100. Your cost of capital is 7 percent. How many years would you have to live to make the lifetime subscription
the better buy? Payments for the regular subscription are made at the beginning of each year. (Round up if necessary to obtain a whole number of years.)
3

A baseball player is offered a 5­year contract which pays him the following amounts:
Year 1: $1.2 million
Year 2: 1.6 million
Year 3: 2.0 million
Year 4: 2.4 million
Year 5: 2.8 million
Under the terms of the agreement all payments are made at the end of each year. Instead of accepting the contract, the
baseball player asks his agent to negotiate a contract which has a present value of $1 million more than that which has
been offered. Moreover, the player wants to receive his payments in the form of a 5­year annuity due. All cash flows are
discounted at 10 percent. If the team were to agree to the player's terms, what would be the player's annual salary (in
millions of dollars)?
4

You are going to loan your room mate $1,000 for one year at a 5% rate of
interest. How much additional interest can you earn if you compound interest
continuously rather than annually?
5