1. Q1 The following expression matches the interest factor of continuous compounding and m compounding. Plug r=0.2, m=4 to get x=0.205

2. Q2 C: Two or more outcomes are possible

3. Q3 Solve for C from the annuity formula Since the loan is amortized monthly, use effective monthly interest rate and T=180

4. Q4 First payment equals principal paid plus interest on total loan amount:

5. Q5 Last Payment is equal to last amount of principal left, which since it was paid in equal parts is $2000, plus interest on what principal is left.

6. Q6 C: No, because there may be other constraints that prevent the company from investing in this project

7. Q7 Use future value formula with simple interest, plug in PV=1000, r=0.07

8. Q8 Discount the future flow of cash one at a time since the rate of growth of payments is not constant, r=0.15 C1500 C2540 C3580 C4620 C5660

9. Q9 There are 14 months between those dates, or t=1.16 years. Use compound interest future value formula, with m=6, r=0.24, and PV=50,000:

10. Q10 18 months is equivalent to 0.66 years. In addition, there are 9 years in between the dates. Use compound interest future value formula with t=9, m=0.66, r=0.24, PV=50,000:

11. Q11 Find what the payments are for a 5 year amortization using monthly compounding. Using this fixed payment, calculate the PV at the end of year 1 for the remaining payments. For first part, use the formula below using re=0.06/12=0.005, T=60, and PV=50,000: Then calculate PV at the end of year 1 for remaining payments, using re=0.005, T=48, C=966.64:

12. Q12 Solve for t in years from the compound interest future value formula, then multiply t by 12 to get months. For the formula below use FV=178, PV=100, r=0.12, m=12 4.82 years is approximately 58 months.

13. Q13 The internal rate of return is the constant discount rate that would make the investments NPV=0. You can find by solving the following equation with x=(1-p) using the quadratic equation: Take the positive value, for which IRR=p=x-1=0.36

14. Q14 A) Use continuous compounding PV formula with stated interest rate, so r=0.08, t=10, FV=1,200: B) Use PV formula with effective interest rate, so r=0.08, t=10, FV=1,200: