1. An investment will return $1,000 in cash in each of years 4and 5. You expect to earn 10%. Is the present value (PV) for thisinvestment properly calculated by the expression: $1,000 (PV/A,10%, 2) (PV/FV, 10%, 3)?
2. For the above investment, is the PV properly calculated by:$1,000 (PV/A, 10%, 2) (1/(1.1)2 )?
3. For the above investment, is the PV also properly calculatedby:Ă‚Â Ă‚Â $1,000/(1.1)4+ $1,000/(1.1)5?
4. A company issues $100k worth of bonds to fund theconstruction of a new building. The bonds pay $7K per annually atthe end of each year for the next 10 years. At the end of the10th year the company also pays the lender back the$100k:
a) What is the interest rate the company is paying on thebonds?
b) The moment after the $100k of bonds issues the companyannounces it has lost a big account. The $100k worth of bonds aretrading on the open market. For this reason, their value drops from$100k to $81.6k. What is the interest rate the bonds are nowpaying?
