1: What would you pay for an asset that had cash flows of $2,000 at the end of year, $2,5000 at the end of year 2 and $3,000 at the end of the year three if the appropriate discount rate is 5% each year? How much money would you have if you banked your cash flows and sold the remains of the asset at the end of the second year? What rate of return did you earn over two years?

2: Your brother-in law needs a loan again. This time he needs to borrow $10,000. He always comes to you because you only charge him 4% interest per year. He promises to pay you $2,000 a year from now, $4,000 in two years and the rest of what he owes you in three years. How much will his third payment be?