(a) The prize in last weeks lottery was estimated to be worth $35 million. If you were lucky enough to win, the payment will be $1.75 million per year over the next 20 years. Assume that the first installment is received immediately.

If interest rates are 8%, what is the present value of the prize? [4]

(b) Prepare a loan amortization schedule involving a $600,000 loan at 10% over 2 year [4]

(c) Assuming an investment of $100 in 3 years time at an interest rate of 10% compounded semi-annually. Describe what is nominal rate, periodic rate and effective annual rate (Show what would be the value of each based on the assumption above)?[6]

d) Find the Yield to Maturity (YTM) of a bond with a $1,000 par value, a remaining life of 12 years, and a coupon rate of 9% per year paid annually. The bond is currently selling for $1076.23. [6]

What would your trading strategy be if you thought that the appropriate rate of interest was 12%?