Question: 1. Consider the cash flows in selections a through d. In each case, the first cash flow occurs at the end of the first period,

1. Consider the cash flows in selections a through d. In each case, the first cash flow occurs at the end of the first period, the second cash flow at the end of the second period, and so on. Which of the following selections has the lowest present value if the discount rate is 4%?

a) $100; $100; $100; $100

b) $0; $0; $0; $450

c) $400; $0; $0; $0

d) $50; $50; $50; $275

2. If I lend you $500 today and expect you to pay me $550 at the end of two years, which covers both the loan repayment and interest, what is the effective annual interest rate that I am charging you on this loan?

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