1. a. What is an opportunity cost rate?
b. How is this rate used in time value analysis?
c. Is this rate a single number that is used in all situations?
2. What is the difference between a lump sum, an annuity, and an un¬equal cash flow stream?
3. Great Lakes Health Network's net income increased from $3.2 million in 2001 to $6.4 million in 2011. The total growth rate over the ten wars is 100 percent, while the annual growth rate is only about 7.2 percent, which is much less than 100 percent divided by ten years.
a. Why is the annual growth less than the total growth rate divided by
ten?
b. Which growth rate has more meaning-the total rate over ten years or the annualized rate?
4. Would you rather have a savings account that pays 5 percent com¬pounded semiannually or one that pays 5 percent compounded daily? Explain your answer.
5. The present value of a perpetuity is equal to the payment divided by the opportunity cost (interest) rate: 1W = PMT a L What is the future value of a perpetuity?
6. When a loan is amortized, what happens over time to the size of the total payment, interest payment, and principal payment?
7. Explain the difkrence between the stated rate, periodic rate, and effec¬tive annual rate.
What are three techniques for solving time value problems?
8. Explain the concept of return on investment (ROI) and the two differ¬ent approaches to measuring ROI.