1. You just won the state lottery. One option to receive your winnings is to tak
ID: 2381765 • Letter: 1
Question
1. You just won the state lottery. One option to receive your winnings is to take 20 annual payments of $25,000. Another option is to take a lump sum payment today (discounted at an interest rate of 6%). What is the lump sum amount today?
A. $286,748
B. $500,000
C. $25,000
D. $188,659
2. Calculate the present value of $100,000 using an annual interest rate of 8% over a period of 10 years, assuming semi-annual compounding.
A. $42,358
B. $51,685
C. $45,639
D. $100,000
3. The following data were reported by a corporation:
Authorized shares 30,000
Issued shares 20,000
Treasury shares 2,000
The number of outstanding shares is:
A. 12,000.
B. 15,000.
C. 17,000.
D. 20,000.
E. 18,000.
4. You are planning to take a major vacation 7 years from now. You deposit $3,000 in the bank today earning an 6% rate of return compounded semi-annually. How much will you have in your account 7 years from now when you go on your vacation? (hint: calculate future value
Explanation / Answer
1. PV = 25,000*(1-1/1.06^20)/6% = 286,748
So answer is choice A
2. PV=100000/(1+4%)^20 = 45,639
So answer is choice C
3. No of outstanding shares = 20,000-2,000 = 18,000
So answer is choice E
4. Future value = 3000*(1+3%)^14 = 4537.77
5. Answer is choice C - The contract (stated) rate is below the market rate.
6. Answer is choice C. Adidas must pay $100,000 at maturity plus 20 cash interest payments of $3,000 each.
7. Cash paid for merchandise = COGS+ending inventory-beginning inventory+beginning A/P-ending A/P = 100,000+3,000-2,000+4,000-3,000 = 102,000
Hope this helped ! Let me know in case of any queries.
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