Show your cash flow diagrams
Find the solution using the mathematical equivalence formulae (such as F=P(1+i)n), substitute and solve (with your calculator not with the tables) for the final answer
Solve by using the proper equivalence expressions (such as F = P(F/P, i, n)) and the tables of equivalence factors.
Draw a box around your final answers.
APR = Annual Percentage Rate
1. An entrepreneur tells you that if you invest in his company, he will give you the equivalent of 20% APR (annual percentage rate) for five years. (no monthly compounding) At the end of five years, he will pay you back in a lump sum of $80,000. How much do you invest in this opportunity today to achieve the 20% APR? Show a cash flow diagram. Show your work and final answer(s).
2. You invest in a scheme that will pay you $4000 at the end of each of the next six years, plus a lump sum payment of $40,000 when the six years are up. If this scheme boasts a 15% APR (annual percentage rate), how much must you invest in this opportunity today to achieve the 15% APR? Show a cash flow diagram. (no monthly compounding) Show your work and final answer(s).