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9. Fernanda hits the big time: she wins the $100 million Power Ball lottery! The State Lottery Authority offers her a choice as to how
9. Fernanda hits the big time: she wins the $100 million Power Ball lottery! The State Lottery Authority offers her a choice as to how she receives her winnings: either $5 million a year coat the end of each year for 20 years, or the present value (PV) today of $5 million a year at the end of each year for 20 years. Data: (a) Compute the PV of the payment stream (R) at r = 6% (b) Compute the PV of the payment stream (R) at r=8%. (c) Compute the PV of the payment stream (R) at r= 10%. 10. Carlos and Diana buy an office building that produces monthly income for them of $15,275. Their required rate of return r = 10.5% annually. Assume a 12-year time horizon for the investment Data: (a) What is the most that Carlos and Diana can pay for the building and still earr-10.5%? Hint: compute the PV of the monthly income ($15,275) at r=10.5%. (b) Suppose Carlos and Diana change their minds and decide on a required rate of return of r = 9.2%. What is the most they can pay for the building? Hint: compute the PV of the monthly income ($15,275) at r = 9.2%. (e) Suppose they change their minds again and get more aggressive: they decide on a required rate of return of r=11.8%. What is the most they can pay for the building now? Hint: compute the PV of the monthly income ($15,275) at r=11.8%
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