Reference no: EM131868944

1. On Jan. 1, Jim decides to invest money in a 6% CD account that compounds interest semiannually. Jim would like the account to have a balance of $50,000 in five years. How much must Jim deposit to accomplish his goal? (Answers may vary slightly due to rounding. Choose the best answer from among those listed below.)

$37,205

$37,363

$66,911

$67,196

2. You win $10,000,000 in the state lottery. You’ll be paid $500,000 at the end of each year for the next 20 years. How much have you actually won? Assume an interest rate of 7%. (Answers may vary slightly due to rounding. Choose the best answer from among those listed below.)

$4,351,984

$4,843,017

$5,297,007

$8,961,287

3. XYZ Company issues $1,000,000 of 5% bonds due in 10 years with interest payable at each year end. The current market rate of interest for these bonds is 6%. What amount will XYZ receive when it issues the bonds? (Answers may vary slightly due to rounding. Choose the best answer from among those listed below.)

Hint: The coupon rate is 5%, which means the annual interest payments will be 5% of the bond's face value. The 6% market rate is used to discount cash flows in the present value calculations. To determine the cash received, you'll need to discount both the stream of 10 annual interest payments and then separately discount the return of principal after 10 years.

$926,399

$949,871

$1,077,217

$1,132,487

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