6. Your grandfather left an inheritance for you of $80,000. However, you can only drawdown on the investment as follows:

Years 1 4 $10,000 each year and

Year 5 $40,000

The interest on the fund is 5%. What is the present worth of this inheritance?

7. H & B Limited borrowed $15,000 at a 14 percent annual interest rate to be repaid over four years. The loan is amortized into three equal annual end-of-year payments. Calculate the annual end-of-year loan payment.

8. Match each sentence to the correct concept.

a) The amount an investment is worth after one or more time periods is referred to as _______________.

b) The process of finding the present value of some future amount is called _________________.

c) Calculating the present value of a future cash flow to determine its value today is known as _________________.

d) Interest earned on the principal and may be for a number of years may be called ___________ is the process of accumulating interest in an investment over time to earn more interest.

e) The interest earned on both the initial principal and the interest reinvested from prior periods is referred to as ______ _______.

9. A bond matures in 20 years and pays an 8 percent annual coupon. The bond has a face value of

$1,000 and currently sells for $900. What is the bonds current yield and yield to maturity?

10. The face value for Karens Limited bonds is $100,000 and has a 2 percent annual coupon. The 2 percent annual coupon bonds matures in 2022, and it is now 2012. Interest on these bonds is paid annually on December 31 of each year, and new annual coupon bonds with similar risk and maturity are currently yielding 12 percent. How much should Karen sell her bonds today?

11. What is the semi-annual coupon bonds nominal yield to maturity (YTM), if the years to maturity is 15 years, and sells for 119% with coupons rate of 10%? Assume the par value of the bond is $1,000.