(1) What is the value at the end of Year 3 of the following cash flow stream if the quoted interest rate is 10%, compounded semiannually? 0 year =$0,1year =$100, 2year= $100, 3year = $100

(2) What is the PV of the same stream?

(3) Is the stream an annuity?

(4) An important rule is that you should never show a simple rate on a time line or use it in calculations unless what condition holds? (Hint: Think of annual compounding, when rSIMPLE = rEAR = rPER.) What would be wrong with your answer to parts (1) and (2) if you used the simple rate 10%rather than the periodic rate rSIMPLE/2 = 10%/2 = 5%?

Answer rating: 100% (QA)

Solution 1 The value at the end of Year 3 of the cash flow stream can be calculated using the formula for future value of a single amount FV PV x 1 rn... View the full answer