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Exam 1 TA Review

Exam 1 TA Review - Spring 2011 Exam 1 Review 1 Assume that...

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Spring 2011 Exam 1 Review 1. Assume that you are calculating the future value of an annuity that pays \$150 in each of Years 1-5. Also assume that the annual required rate of return associated with this annuity is 12 percent. What is the dollar difference between calculating the future value of this annuity as an annuity due versus an ordinary annuity? 2. Assume that you are given the following cash flows: Year 3 = \$100; Year 4 = \$200; Year 5 = \$300. At a 10% interest rate, what is the total value of these three cash flows, evaluated as of Year 20? 3. Assume that you are approached by someone who is offering to sell you a zero coupon bond that has 5 years until maturity. The face value of the bond is \$1000, and you believe the fair interest rate to be 6%. Determine the current price of this bond. A. \$741.37 B. \$747.26 C. \$754.78 D. \$766.45 E. \$1007.23

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4. Assume that you have been offered an investment that pays \$450 at the end of every 6 months for the next 5 years (10 payments). The nominal interest rate is 12 percent; however, interest is compounded quarterly.
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