• • 1.You have a sub-contractor job with a local manufacturing firm. Your agreement calls for annual payments of $50,000 for the next five years. At a discount rate of 12%, what is the job worth to you today?

    2.As an excellent student in environmental ecology, you have been awarded the "Clean Effluent Prize" by a state agency. You (or your estate) could receive $300 forever from the state or $400 for the next 25 years. Payments are to be received annually. If the market rate of interest is 6%, what is the value of the two options respectively?

    3. A bond is purchased on January 1, 2013. The bond provides payments of $4,000 on June 30 and December 31 of each year, and a lump sum payment of $100,000 on December 31, 2017. Determine the price that should be paid for the bond if a 10% rate of return is required.

    4 You are to receive $75 per year indefinitely. The market rate of interest for these types of payments is 8%. The price you would pay for this stream is?

    5. The government imposed a fine on the Not-So-Legal Company. The fine calls for a payment of $100,000 today, $150,000 one year from today, and $200,000 two years from today. The government will hold the funds until the final payment is collected and then donate the entire amount to charity. The government has agreed to pay an annual interest of 3 percent on the held funds. How much will be donated to charity in two years?

Answer rating: 100% (QA)

1 To determine the present value of the job we can use the formula for present value of an annuity PV C 1 1 rn r Where PV is the present value C is th... View the full answer