You won the lottery and can receive either 1. 60,000 today, or 2. 10,000 one year from today
plus 25,000 two years from today plus 35,000 three years from today. You plan to use the money
to pay for your child's college education in 15 years.
You should
A) take option two because you get 70,000 rather than 60,000 regardless of current interest
rates.
B) take the 60,000 today because of the time value of money regardless of current interest rates.
C) take the 60,000 today if you can earn 6.81 per year or more on your investments.
D) take the 60,000 today only if the current interest rate is at least 16.67.
Question 2
Skye Industries Inc. bonds currently have 14 years remaining to maturity. What is the yield to maturity of the firm's semi-annual bonds if they carry a face value of 1,000, an annual coupon rate of 8 and have a current price of 885.16?
A) 8.00
B) 8.75
C) 9.50
D) 10.25
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