Problem 1. Suppose that the following cash flows are received:
0 = -$500, 1 = $200, 2 = $200, 3 = $200
The Internal Rate of Return on the cash flows (rounded to the nearest percent) is
8%, 9%, 10%, 11%, or 12%
Problem 2. A 10-year bond paying 8% annual coupons pays $1000 at maturity. If the required rate of return on the bond is 7%, then today the bond will sell (rounded to the nearest cent) for
$1000.00
$1210.45
$987.48
$1070.24
Problem 3. The annual revenue-growth rates for a new tech star tup during its first 4 years of operations were as follows:
1 = 50, 2 = 50, 3 = -50, 4 = -50
Rounded to the nearest tenth of one percent, the start up's 4-year Compound Annual Growth Rate was
-13.4% or -10.5%
Problem 4. Last year, a barber shop generated $100,000 in profit. Assume that the shop's profits grow at 5% per year and that cash flows are discounted at 10% per year. If profits are received at the end of each year, what is the present value of all the shop's future profits?
$2,100,000
$3,000,000