1)Present Value and Annuity Payments A local furniture store is advertising a deal in which you buy a $5,000 living room set with three years before you need to make any payments (no erect cost incurred)

1)Answer : Calculation of Amount to be deposited Now (Present value):

Present Value = Future Value / (1 + rate per period)^number of periods

where,

rate per period is 4% / 12= 0.3333% or 0.0033333

Number of periods i.e 3 * 12 = 36

Present Value = Future Value / (1 + rate per period)^number of periods

= 5000 / (1 + 0.003333)^36

= 5000 / 1.127272

= 4435.487 or 4435.49

Calculation of Periodic payment

Periodic Payment

Periodic Payment = Future Value of Annuity / {[(1+r)^n - 1] / r }

where

r is the rate of interest per period i.e 4% / 12 or 0.00333333

n is the number of payments i.e 36 (12 * 3 )

Future Value is $5000

Periodic Payment = 5000 / {[(1+0.0033333)^36 - 1] / 0.0033333 }

= 5000 / {[1.127272 - 1] /0.003333 }

= 5000 / { 0.127272 / 0.0033333 }

= 5000 / 38.18156

= 130.95

2)

Owners of financial claims can sell them in the primary market.

The financial claim of the owners' can not sell then in to the primary market, before the maturity date, it can be sell in the secondary market.

Therefore, it is considered as a not correct statement.

In order to raise funds for deficit spending units, the financial claims can be issued in the primary market. The successive owners through the secondary market is possible. Thus, these are correct statements.