**Unformatted text preview: **ARE 171a Homework 2 M. Whitney Fall 2010 Due Monday, Oct. 25, in class 1. For each set of cash flows below, find the present value given the following annual discount rates: 3%, 6%, and 9% a. An ordinary annuity that pays $400 per month, for 5 years. b. A lump sum of $400,000, that you will inherit at the end of 20 years. c. An apartment building that is expected to generate the following annual cash flows (at the end of each year) The first year shows a loss, due to costs of renovating the property. 1 2 3 4 5 6 7-60,000 20,000 20800 21600 22500 23400 700000 d. A British consol bond (a perpetuity) that pays $25 per year, at the end of each year, forever. 2. Margaret plans to buy a new car a year from now. Its price will be $20,000 at that time. She has $6000 in cash on hand today. How much will she need to deposit at the end of each month in order to afford this car? First assume that her savings earn a 3% annual rate, then assume they earn a 12% annual rate....

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