1) You are offered a chance to buy an asset for $4,500 that is expected to produce cash flows of $750 at the end of Year 1, $1,000 at the end of Year 2, $850 at the end of Year 3, and $6,250 at the end of Year 4. What rate of return would you earn if you bought this asset?
a. 23.77% b. 20.60% c. 17.21% d. 22.64% e. 26.72%
2) Your girlfriend just won the Florida lottery. She has the choice of $15,900,000 today or a 20-year annuity of $1,050,000, with the first payment coming one year from today. What rate of return is built into the annuity? Disregard taxes.
a. 2.28% b. 2.16% c. 2.81% d. 2.84% e. 3.23%.
3) Assume that you own an annuity that will pay you $15,000 per year for 12 years, with the first payment being made today. You need money today to start a new business, and your uncle offers to give you $156,000 for the annuity. If you sell it, what rate of return would your uncle earn on his investment?
a. 2.42% b. 3.31% c. 2.72% d. 2.15% e. 2.77%.
4) What is the present value of the following cash flow stream at a rate of 10.0%? Years: 0 1 2 3 4 CFs: $0 $1,500 $3,000 $4,500 $6,000
a. $13,586 b. $11,322 c. $13,473 d. $11,888 e. $9,850