Question

**QUESTION 1:**

In 2017, the NBA superstar Stephen Curry signed a new contract with Golden State Warriors. According to the contract, Curry will receive $34.68 million on December 9, 2017 (t=0); $35.46 million on December 9, 2018 (t=1); $40.23 million on December 9, 2019 (t=2); $43.00 million on December 9, 2020 (t=3) and $45.78 million on December 9, 2021 (t=4). Assume that the interest rate is 5% p.a. The present value of Stephen Curry’s new contract on December 9, 2017 (i.e., at t=0) was $_______ million.

**QUESTION 2:**

For $10,000, you can purchase a five-year annuity that will pay $2,504.57 per year for five years (first cash flow to occur exactly one year from today). Assuming that the interest rate on this account is compounded monthly, calculate the nominal annual interest rate implied by this arrangement.

**QUESTION 3:**

You plan to deposit money in a saving account earning 10% p.a. You will make 4 annual deposits of $7,000 each. The first deposit will be made today, and the second deposit will be made one year from today and so on. No deposits will be made after the fourth deposit. What will be the accumulated sum available at the end of 20 years with annual compounding?

**QUESTION 4:**

You are considering buying a new car. The sticker price is $20,000 and you have $5,000 to put toward a down payment. If you can negotiate a nominal annual interest rate of 3.85% p.a. and you wish to pay for the car over a 3-year period, what will be your monthly car payment?

Answer #1

Assuming current time (9th December 2017) is t=0, we have the following cash flows:

$ 34.68 million in Year 0, $ 35.46 million in Year 1, $ 40.23 million in Year 2, $ 43 million in Year 3 and $ 45.78 million in Year 4.

Interest Rate = 5 %

Total Present Value of Cash Flows = 34..68 + 35.46 / 1.05 + 40.23 / (1.05)^(2) + 43 / (1.05)^(3) + 45.78 / (1.05)^(4) = $ 179.75 million

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