Using Formula OR Excel function.

For problems 5 & 6 use required nominal annual return:			10.00%
5. Consider the following end-of-year cash flows:
Year	Cash flow
0	$0.00
1	$40.00
2	$60.00
3	$60.00
			Present Value
a. What is the present value of these cash flows (in year 0)?
b. If the purchase price of this investment is $140 today, would you buy it? Why?
(Compare instrinsic value to actual price)
c. What is the expected rate of return on this investment if the purchase price is $140?
Year	Cash flow	Internal Rate of Return
0	-$140.00
1	$40.00
2	$60.00
3	$60.00
d. Would you buy this investment based on your answer to part c. and why?
(Compare expected return to required return).
			Present Value
6a. What is the present value of $1,000,000, due 25 years from now?
b. What is the present value of a $40,000 ordinary annuity for 25 years?
c. What is the present value of a $40,000 perpetuity, if the first payment is 1 year from now?
d. What is the present value of a $40,000 perpetuity, if the first payment is now?