Suppose the opportunity cost of capital is 10% and you have just won a $1 million lottery that entitles you

to

$100,000 at the end of each year for the next 10 years.

What is the minimum lump sum cash payment you would be willing to take now in lieu of the 10 year

annuity?

What is the minimum lump sum you would be willing to accept at the end of the l O years in Lieu of the

annuity?

Using the appropriate interest factor table, answer each of the following questions (each case is independent of each other.)

Your company purchases a 5-year certificate of deposit which pays semi-annually and has a stated interest rate of 8 percent. The initial investment is $5,000. What is the future amount of your investment worth at the end of 5 years?

What amount must you put in the bank today if you will need $10,000 in 8 years for the cost of your

child's college education? The bank will provide you with interest payments quarterly on your investment. The annual rate of interest you have been quoted is 12 percent.