Clicker Question Preparation Guide: App. G Clicker questions will be asked in class based on your completion of this preparation guide. You will not have time to complete this guide in class!

1) Jones Company signed a lease for a rental unit for 14 years. Under the lease agreement, a deposit of $5,000 is made. The deposit will be returned at the expiration of the lease with interest compounded at 4% per year. What amount will Jones Company receive at the time the lease expires?

2) Sue Jackson has an investment that pays her $40,000 every year for the next 20 years. However, she would like to sell her investment today to purchase a house. Assume the going market interest rate is 11%, how much would a wise investor be willing to pay for this investment?

3) You want to save up for a car which you will need when you graduate in 3 years. How much would you have to deposit today, if this amount would earn 8% per year, to have $20,000 when you graduate?

4) Joe and Jan Johnson decided to invest $1,500 every year for their daughters college fund until she is 18 (starting on her 1^st birthday and including her 18^th birthday). How much will be in the savings account on her 18^th birthday (after the last deposit) assuming an interest rate of 7%?

5) ABC Enterprises issues $500,000 of bonds paying a stated interest rate of 8%. The bonds are due in 10 years, with interest payable annually each year on Jan. 1^st. When the bonds are issued, other bonds of similar risk and maturity are paying 10% (i.e. the discount rate or market interest rate is 10%).

Calculate the issuance (selling) price of this bond:

Present value of interest payments (annuity portion)	_______ (int. payment) * _________(factor) =	____________
Present Value of Bond Principal (single sum value)	500,000 (principal) * _________(factor) =	____________
Total Present Value, or selling price		____________

6) Smithson Co. issues $400,000 of bonds paying a stated interest rate of 10%. The bonds are due in 10 years, with interest payable semiannually on July 1^st and Jan. 1^st each year. When the bonds are issued, other bonds of similar risk and maturity are paying 8% (i.e. the discount rate or market interest rate is 8%).

Calculate the issuance (selling) price of this bond:

Hint: Each interest payment (cash flow) will be equal to principal x stated interest rate x 6/12

Present value of interest payments (annuity portion)	_______ (int. payment) * _________(factor) =	____________
Present Value of Bond Principal (single sum value)	400,000 (principal) * _________(factor) =	____________
Total Present Value, or selling price		____________

7) Answer below with face value, premium or discount:

a. If the stated contract rate is greater than the market rate, then the bonds will be issued at a ______________.

b. If the stated contract rate is less than the market rate, then the bonds will be issued at a _______________.

c. If the stated contract rate is the same as the market rate, then the bonds will be issued at ________________.