Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

a. You win a lottery and there are no more winners. The announced prize is $30 million, to be paid in 30 equal installments of

a. You win a lottery and there are no more winners. The announced prize is $30 million, to be paid in 30 equal installments of $1 million. The first payment is made right now. Each subsequent payment is made at the end of each of the next 29 consecutive years. If you wish, you can accept a balloon payment now. Suppose the lottery commission uses a discount rate of 6%. What is the value of the lump sum payment?

b. A bond is in a risk class that pays 5% per year. The bond pays annual interest of $400 (the first interest payment is one year from now) and matures in 10 years at a value of $10,000. What is the price of the bond?

Step by Step Solution

3.43 Rating (159 Votes )

There are 3 Steps involved in it

Step: 1

a To find the value of the lump sum payment we need to calculate the present value of the 30 equal i... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Data Analysis And Decision Making

Authors: Christian Albright, Wayne Winston, Christopher Zappe

4th Edition

538476125, 978-0538476126

More Books

Students also viewed these Accounting questions