You just won a lottery that promises to pay you $1 million exactly ten years from...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
You just won a lottery that promises to pay you $1 million exactly ten years from today. Because the $1 million payment is guaranteed by the state in which you live, opportunities exist to sell the claim today for an immediate lump-sum cash payment. a. What is the least you will sell your claim for if you could earn the following rates of return on similar risk investments during the ten-year period? 1. 6 percent 2.9 percent 3. 12 percent b. Rework part (a) under the assumption that the $1 million payment will be received in fifteen rather than ten years. c. Based on your findings in parts (a) and (b), discuss the effect of both the size of the rate of return and the time until receipt of payment on the pres- ent value of a future sum. You just won a lottery that promises to pay you $1 million exactly ten years from today. Because the $1 million payment is guaranteed by the state in which you live, opportunities exist to sell the claim today for an immediate lump-sum cash payment. a. What is the least you will sell your claim for if you could earn the following rates of return on similar risk investments during the ten-year period? 1. 6 percent 2.9 percent 3. 12 percent b. Rework part (a) under the assumption that the $1 million payment will be received in fifteen rather than ten years. c. Based on your findings in parts (a) and (b), discuss the effect of both the size of the rate of return and the time until receipt of payment on the pres- ent value of a future sum.
Expert Answer:
Answer rating: 100% (QA)
a 1 At 6 annual interest compounded annually the present value of 1 million ... View the full answer
Related Book For
Principles Of Managerial Finance
ISBN: 978-0136119463
13th Edition
Authors: Lawrence J. Gitman, Chad J. Zutter
Posted Date:
Students also viewed these finance questions
-
Read the following paragraph. Then choose the summary that includes the main idea of the paragraph. As powerful companies, savvy politicians, and activist groups became aware of the media's...
-
You just won a lottery that promises to pay you $1,000,000 exactly 10 years from today. Because the $1,000,000 payment is guaranteed by the state in which you live, opportunities exist to sell the...
-
You have a trust fund that will pay you $1 million exactly 10 years from today. You want cash now, so you are considering an opportunity to sell the right to the trust fund to an investor. a. What is...
-
Norman Freight purchased a building for $1,100,000 and depreciated it on a straight-line basis over a 30-year period. The estimated residual value was $140,000. After using the building for 15 years,...
-
Study the following two product mixes below are provided. Product Mix 1: A, B, C and D are the lines and for Product Mix 2: X, Y and Z are the lines. Which mix has more breath and why? Which mix is...
-
Suppose the firm in Problem 3 had 85,000 shares of common stock outstanding. What is the earnings per share, or EPS, figure? What are the dividends per share figure? In problem 2 Papa Roach...
-
What can be done to stimulate creativity in decision making?
-
The following amortization schedule is for Flagg Ltd.'s investment in Spangler Corp.s $100,000, five-year bonds with a 7% interest rate and a 5% yield, which were purchased on December 31, 2013, for...
-
Margaret is working on her company's variance analysis at year-end. She has everything completed except the fixed-MOH variances. Budgeted fixed-MOH costs were $147,200 for the planned 11,500 units to...
-
Get It Right, CPAs, has been retained to review its client's corporate formation calculations for 20XX. Maria, Roger, and Novak created Grassroots Tennis, Inc. (GTI), which began operations on March...
-
The steel industry has always been considered the bedrock for economic growth and development. The steel sector in the Middle East and North Africa (MENA) region has witnessed major transformations...
-
(c) Barlucchi International Ltd is a multinational company based in the United Kingdom and manufactures beers, which are sold in two other countries namely, United States and France, through its...
-
Consider the following system of equations. 2x1 + x2+x3 = b - x13x2 + 4x3 = b -x1 + x3 = b3 (a) Write the system of equations as a matrix equation. (b) Solve the system of equations by using the...
-
What are some key challenges Nissan is facing this day and age? What are your personal recommendations for improving operations at this company?
-
Z QUESTIONS 1. As a junior member of your company's committee to explore new markets, you have received a memo from the chairper- son telling you to be prepared at the next meeting to discuss key...
-
Emerald Company has $25,000 in cash, $15,000 in marketable securities, $45,000 in accounts receivable, $45,000 in inventories, and $50,000 in current liabilities. what is The company's quick ratio ?
-
calculations are off need help . View Policies Show Attempt History Current Attempt in Progress Your answer is partially correct. Unit VII Lab Assignment Question 7 of 18 2.57 / 3 8 1 tax. Prepare...
-
In Exercises discuss the continuity of each function. f(x) -3 1 x - 4 y 3 2 -1 -2 -3+ 3 X
-
What does the coefficient of variation reveal about an investments risk that the standard deviation does not?
-
What roles do GAAP, the FASB, and the PCAOB play in the financial reporting activities of public companies?
-
Using annual, semiannual, and quarterly compounding periods for each of the following, (1) calculate the future value if $5,000 is deposited initially, and (2) determine the effective annual rate...
-
Why and how do tax authorities get involved in the transfer pricing situation?
-
Assume a VAT situation where the tax rate is 15 percent, with export sales exempt. The manufacturer does not purchase inputs on which VAT has been paid, and its net selling price to the wholesaler...
-
A Galex Com pain, a manufacturer of stereo systems, started its production in October 2002. For the preceding 3 years Galex had been a retailer of stereo systems. Alter a thorough survey ol stereo...
Study smarter with the SolutionInn App