1. An asset promises to pay $1,000 in each of the next two years. a) What is its present value assuming the one-year rate of discount is 1.5% and the two-year is 2.2%? b) What is its present value assuming both discount rates are 1.85%? 12. An asset promises to pay $60 in each of the next three years. Assume the rate of discount is 5% for each of the years. a) Calculate its price the “long” way; i.e., just as you have been doing for #11 and #12, by discounting each future cash flow and summing. b) Calculate its price using the annuity formula.
