Hello, the task is to answer and provide the step by step details to the following questions provided with the all the information.These questions are pulled from the uploaded images. You can read the images they have all the information.

1) If you can purchase the ticket for $2.0 million, what annual rate of return will you get on your investment? What about if you win the bid at $1.5 million?

2) Given the current (July 1, 1992) prices and yields in the capital markets, what do you think is the approximate " fair market value" of the ticket?

3) If you factored taxes into this situation, how would it change your valuation of the ticket?

3. After consistently failing to win the lottery for several years, you notice the following article in the Wall Street Journal. Here's your chance to buy a lottery ticket that is a guaranteed winner. But since it will apparently cost a bit over the original $1 ticket price, the winning ticket is considerably out of your price range. The investment company you work for is, however, interested in such opportunities. You decide to research a bit further and gather the interest rate data (on the next page) for the day before the ticket is auctioned. In your "first cut" at the analysis, you decide to ignore taxes. The winner will receive the first of the 16 payments almost immediately, with the rest stretched out over 15 years If you can purchase the ticket for $2.0 million, what annual rate of return will you get on your investment? What about if you win the bid at $1.5 million? Given the current {July 1, 1992) prices and yields in the capital markets, what do you think is the approximate "fair market value" of the ticket? If you factored taxes into this situation, how would it change your valuation of the ticket? The Wall Street Journal, June 80, 1992 The Wall Street Journal , June 30, 1992 Pricey, but Perhaps the Only Way "To Buy a Certain Lottery Winner BY ANDREA GERLIN in the auction , declines to speculate about Staff Reporter of THE WALL STREET JOURNAL whether the minimum bid is a bargain or NEW YORK - After the late Solomon how much the prize may fetch . ' That's for Keith bought a lottery ticket at the Chirag each individual to calculate , depending on Newsstand on Wall Street in 1987, his what they think the future of interest rates number came up not once but twice . is going to be ," he says . Mrs. Keith won a $5 million share of Using the 15- year Treasury bond at a larger jackpot, but didn't live to enjoy recent yields as a benchmark , & Wall much of it . Unfortunately , the 55- year-old Street financial analyst predicts that the bank janitor died in an auto accident 15 successful bid is likely to hover around $2.1 months later , not long after collecting the million . But it a bidder were to walk away second of ZI annual installments of $240, 245 with rights to the payment's in exchange each . for the minimum $1. 3 million , the financial As a result , surrogate's court in lower analyst figures that the investor will have Manhattan will be the scene of some* parked the money in the equivalent of a unusual bidding tomorrow morning when 17% investment . And while that yield MT. Keith's $3. 8 million taxable lottery would be high , the risk is low , because the proceeds - the remainder after he and his state isn't likely to default . heirs collected five payments - are offered In the past , living prize winners have in an estate auction .* sold their lottery futures in private auct This time , the award will cost more Lions , but many states prohibit such trans * than the*" dollar and a dream" advertised actions . New York state allows them only* by New York state's lottery . A minimum with a judge's approval , A public estate bid of $1. 3 million has already been set in auction is even less common . this latest of gambles on interest rates . The lucky bidder will buy into an Although the $240, 245 annual payments exclusive club of 8on grand prize winners . may look attractive , would- be investors Merely playing this game may require should bear in mind that the end payment membership in an exclusive club , though ." in 2007 would have a net present value of Bidders must present a certified or bank $68, 281 , discounted at 8. 18% annually . check payable to the public administrator Charles Mile , an attorney involved of New York for $130, 000.Tables for Problem #3 are extracted from The Wall Street Journal, July 2, 1992 TREASURY BONDS, NOTES & BILLS Wednesday, July 1, 1992 million or more. Representative Over-the-Counter quotations based on transactions of st Treasury bond, note and bili quotes are as of mid-afternoon. Colons in bid-and-asked quotes represent 32nds: 101:01 means 101 1/32. Net changes in 32nds. n-Treasury note. Treasury bill quotes in hundredths, quoted on terms of a rate of discount. Days to maturity calculated from settlement date. All vieldis are to maturity and based on the asked quote. Latest 13-week and 26-week bills are boldfaced. For bonds callable prior to maturity, vields are computed to the earliest call da call date for Issues quoted above par and to the naturity date for issues below par. "-When Issued. Source: Federal Reserve Bank of New York. U.S. Treasury strips as of 3 p.m. Eastern time, also based on transactions of $1 million or more. Colons In bid-and-asked quotes represent 32nds; 101:01 means 101 1/32. Net changes in 32nds. Yields calculated on the asked quota- tion, ci-stripped coupon Interest. bo-Treasury bond, stripped principal. no-Trea- sury note, stripped principal. For "bonds callable prior to maturity, yields are MORTGAGE-BACKED SECURITIES maturity date for issues below par. Source: Bear. Stearns & Co. vla Street Software Technology Inc. Representative Issues, quoted by Salomon Brothers Inc GOVT, BONDS & NOTES REMAINING PRICE CHANGE CASH Maturity TERM LIFE FLOW YIELD Rate Mo/Yr Ask Maturity Rate Mo/Yr ASK (JULY) Bid Asked Cho. Yld. Bid Asked Cho. CHANGE Years (Years) (Pts.-32ds) (32ds) YIELD" (Basis pts.) 103/8 Jul 92n 100:07 100:09 - 1 -0.95 8. Nov 97n 100: 11 100: 13 Jan 98n 81/: Feb 980 105: 17 106: 19 Jul 92n 107:20 107:22 30-YEAR 41/4 Aug 92 7'/s Apr 98n 106: 15 106: 17 7 + 4 6.50 GNMA 8.0% 29.6 10.5 7/: Aug 92n May 93-8 101:05 101: 13 101-14 7.84% 100: 13 100: 15 + 7 May 98n 6.54 FHLMC Gold 8.0% 29.3 7.3 00-30 2 - 7.86 81/4 Aug 92n 100: 16 100: 18 8% Aug 92n 100:22 100:24 81/4 Jut 98n 113:04 113:06 - FNMA 8.0%% 29.4 7.9 100-24 2 7.87 101:02 101:04 GNMA 9.0% 49.J 8.6 106-09 + 4 7.89 Sep 92n Oct 92n 101:06 101:08 101:21 101:23 97:26 98:26 + 18 3.71 + 5 6.65 FHLMC Gold 9.0% 29.2 6.3 105-14 - 2 7.79 4 Oct 92n 101:08 101: 10 FNMA 9.0%% 28.3 6.3 105-12 - 2 7.74 29.0 3.8 + 2 6.99 101/2 Nov 92n Nov 920 102: 13 102: 15 101:20 101:22 84/2 May 94-59 705:31 106:07 GNMA 10.0% 109-02 101: 14 101: 16 FHLMC Gold 10.0% unch 101:27 193:24 yes May 9on 6.78 27.6 2.3 107-22 6.13 102: 38 102:20 - 1 3.60 27.8 5.98 1/0 Nov 9on 6.85 FNMA 10.0% 07-24 unch unch 84/4 Jan 93n 81/2 F 15-YEAR 63/4 18 98:02 101:23 101:27 B'/s May 0On Aug 95-00 106: 14 106: 18 5 6,95 GNMA 8.0% 14.5 6.4 03-24 7.24% Feb 93 ta Feb 93n 102: 12 102: 16 82/4 Aug 00n 110:24 110:26 5 6,98 FHLMC Gold 8.0% 14.6 5.2 103-13 + 7.18 83/s Feb 93n 102: 18 102:20 102:21 102:23 8'/7 Nov 0On Pf F 109:06 109:08 104: 12 104: 14 - 5 7.02 FNMA 8.0% 14.7 7.24 107/a Feb 93n 8/4 Feb 93n 17/4 Feb 01 101:26 101:28- 6 7.05 *Based on projections from Salomon's prepayment model, assuming interest 71/a Mar 93n 95/a Mar 93n 102:09 102: 11 1+ 1 3.82 May 0in 131/s May 01 105:26 105:28 + 6 7.10 rates remain unchanged from current levels 73/s Apr 93n 77/: Aug 0in 139: 15 139: 19 3.91 104:29 104:31 AUG 96-01 KM:29 105:01 75/s May 93n 102:31 103:01 Aug 01 3.99 7.15 85/s May Von 10'/s May 930 103:26 103:28 15/4 Nov 01 105:03 105:05 149: 10 149:14- 5 7.06 102: 11 102: 13 141/4 Feb 02 - 6 7.07 102:25 102:27 71/2 May 02n 113/ Nov 02 102: 26 102:28 + 8 7.09 81/s Jun 93n Jun 93n 10/4 Feb 03 131:31 132:03 + 10 7,18 71/4 Jul 90n 103:28 103:30 4.00 67/8 Jul 93n 103:05 103:07 1 4.01 1 10/4 May 03 125: 29 126:01 2 7.24 Aug 93n 102:25 102:27 104:02 104:04 4. 13 17% Aug 03 104:23 104:25 11/1 Nov 03 128:29 129:01 134:30 135:02 8374 Aug 93n 104:28 104: 30 123/s May 04 139:21 139:25 3 108:09 108: 13- 132/4 Aug 04 115/s Nov 04 151:03 151:07 63/s A 133:23 133:27 61/% 81/a Sep 93n 102:07 102:09- 104:24 104:26 4.21 8'/# May 00-05 106:02 10 May 05 103/4 Aug 05 137: 10 137: 15 127: 11 127: 15 7.43 Oct 93n 103: 15 103:17 102:02 102:04 93/s Feb 06 116: 18 116:22 5 + 10 7 7,43 73/4 Nov 93n 104: 13 104: 15 75/* Feb 02-07 102:03 102:07 7/% Nov 02-07 103:11 103:15 Arar Oin 105: 18 105:20 i/4 .ni M*-m 85/8 AUD 03-08 106:26 106:30 + 7 7.45