1. If the APR is 4% and the compounding period is monthly, what is the EAR?
2. Would you prefer $1000 today or $2000 in 5 years?
a. If the prevailing interest rate is 9%
b. If the prevailing interest rate is 18%
3. What is the present value of a perpetuity that pays an annual cash flow of $150 with prevailing interest rates of 5%?
4. What is the present value of a perpetuity that pays its first cash flow of $500 one year from now and then grows by 3% per year. Assume prevailing interest rates of 6%?