NOTE that significant marks will be lost if your answer does not include the NUMERICAL FORMULA. Question 1 (25 marks) [Each part is independent.) a) You have won a lottery and can choose to receive the payment under one of the following two arrangements: (1) $250,000 every six months forever, or (2) fixed payments of $X every six months for 15 years. Suppose the relevant half-yearly rate is 5% and the payments under both arrangements will start immediately. i) How much is the lottery worth today under Arrangement (1)? (4 marks) ii) What is the amount of SX in Arrangement (2) so that it has the same value as Arrangement (1)? (4 marks) b) Calculate the total amount of interest on interest earned five years from now if $100,000 is deposited into a bank account today that eams 5% interest per year. (4 marks) C) ABC Corporation issued at par S100 million semi-annual coupon-paying bonds on January 1, 2010. The bond's YTM at issuance was 8% (APR). The bond matures on January 1, 2020. i) Compute the market value of this bond on January 1, 2011 if it was priced to produce an effective semi-annual yield to maturity of 6% on that date. (5 marks) ii) Assume the bond is sold on January 1, 2011. Calculate the current yield and 1- year capital gains yield (CGY 1-year). (6 marks) iii) Can the 1-year total yield be determined by the sum of current yield and capital gains yield? Explain your answer. (2 marks)