Author Question: Penny just won the state lottery that offers a choice of payments. She may opt for either receiving ... (Read 97 times)

luvbio · **on:** Jul 10, 2018

Penny just won the state lottery that offers a choice of payments. She may opt for either receiving 1,000,000 today or 2,000,000 at the end of ten years. If she can invest her funds at 5 annually, which is the better choice?

A) The later payment since 1,000,000 invested at 5 for ten years will be worth 1,500,000.
B) The immediate payment since the present value of the 2,000,000 payment is 1,200,000.
C) The earlier payment since the future value of 1,000,000 in ten years is 1,628,894.
D) The earlier payment since the present value of the 2,000,000 payment is 876,000.
E) The later payment since the present value of the 2,000,000 payment is 1,227,827.

Question 2

Hampton Construction Inc. has issued 20-year semiannual coupon bonds with a face value of 1,000. If the annual coupon rate is 12 and the current yield to maturity is 10, what is the firm's current price per bond?

A) 934.20
B) 1,000.00
C) 1,171.59
D) 1,362.74

brittiany.barnes · **Reply #1 on:** Jul 10, 2018

Answer to Question 1

E

Answer to Question 2

Answer: C
Explanation: C) Bond Price = PMT +
MODE = END, P/Y = 2, C/Y = 2
INPUT 40 10 ? -60 -1,000
KEY N I/Y PV PMT FV
CPT 1,171.59