1. The government has imposed a fine on the Not-So-Legal Company. The fine calls
ID: 2819612 • Letter: 1
Question
1. The government has imposed a fine on the Not-So-Legal Company. The fine calls for annual payments of $100,000, $250,000, and $250,000, respectively over the next three years. The first payment is due one year from today. The government plans to invest the funds until the final payment is collected and then donate the entire amount, including investment earnings, to a national health center. The government will earn 3.5 percent on the funds held. How much will the national health center receive three years from today? Round to the nearest cent. Do not include any unit (If your answer is $111.11, then type 111.11 without $ sign.)
2. What is the effective annual yield of 6% compounded semi-annually? Answer in the percent format. Round to the nearest hundredth percent. Do not include any unity (If your answer is 4.36%, then enter 4.36 as your answer without % sign).
Explanation / Answer
Question 1
Future Value of Uneven Cash flow can be calculated as
CF0*(1+R)^N + CF1*(1+R)^N-1.........+CFN
100,000 * (1.035)^2 + 250,000 * (1.035)^1 + 250,000
100,000*1.071225 + 250,000*1.035 + 250,000
107,122.50 + 258,750 +250,000
615,872.50
The national health center receive $ 615,872.50 three years from today.
Question 2
Effective Annual Yield = [1 + (r/n)]n – 1
where
r = nominal rate
n = number of compounding per year
Effective Annual Yield = [1 + (.06/2)]2 – 1
= 1.03^2 -1
= 1.0609 - 1
= .0609
= 6.09%
6.09
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