7. A small company borrowed $10,000 to expand their business. The entire princip

Question

7. A small company borrowed $10,000 to expand their business. The entire principal of $10,000 will be repaid in two years, but interest payments of $330 must be paid every three months. What nominal annual interest rate is the company paying? 8. The multistate Powerball Lottery, worth $182 million, was won by a single individual who had purchased five tickets at $1 each. The winner was given two choices: Receive 26 payments of $7 million each, with the first payment to occur now and the rest to be sent at the end of each of the next 25 years, OR receive a single lump-sum payment today that would be equivalent to the 26 payments of $7 million each. If the lottery uses an interest rate of 4%/yr/yr, find the amount of the lump sum payment.

Explanation / Answer

Ans 7

Interest paid every quarter = $330*100/$10000

= 3.3%

Nominal interest rate annually = 3.3% x 4 = 13.2%

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