1- On March 28, 2008, Toyota Motor Credit Corporation (TMCC), a subsidiary of Toyota Motor, offered some securities for sale to the public. Under the terms of the deal, TMCC promised to repay the owner of one of these securities $100,000 on March 28, 2038, but investors would receive nothing until then. Investors paid TMCC $24,099 for each of these securities; so they gave up $24,099 on March 28, 2008, for the promise of a $100,000 payment 30 years later. Why would TMCC be willing to accept such a small amount today ($24,099) in exchange for a promise to repay about four times that amount ($100,000) in the future?

2- As you increase the length of time involved, what happens to the present value of an annuity? What happens to the future value?

3- Tri-State Megabucks Lottery advertises a 10 million grand prize. The winner receives $500,000 today and 19 annual payments of $500,000. A lump sum option of $5 million payable immediately is also available. Is this deceptive advertising?

4- Suppose you won the Tri-State Megabucks Lottery in the previous question. What factors should you take into account in deciding whether you should take the annuity option or the lump sum option?

5- What is compounding? What is discounting?