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QUESTION ONE A Alfred Banda, a legal practitioner, has just won lottery amounting to ZMW2.000.000. There has been an agreement between the Lottery Company and
QUESTION ONE A Alfred Banda, a legal practitioner, has just won lottery amounting to ZMW2.000.000. There has been an agreement between the Lottery Company and Alfred regarding the way payments will be made. The two parties have agreed to an equalannual instalments of ZMW500,000. The lottery is not paying him immediately. The first payment will be made at the end of the sixth year. Assume that the opportunity cost of capital is 15%. or more B. Suppose, instead, that Alfred has been told that he will receive his money in Twelve (12) equal monthly instalments with the first payment being made at the end of month 1. The lottery company has also assured Alfred of a 5% interest on the remaining balance i. Use an appropriate structure or computation to show the periodic payments and the associated interest [20 Marks] How much will Alfred have received in total by the beginning of the 7h Month? [3 Marks) Consider the amount you have found in (I) above What is the present value of that amount if the monthly interest rate is 12%? [4 Marks] iv Refer to (1) above. Suppose that the Slternative is to receive ZMW1 400.000 today, then the remaining amount to be paid in equal instalments for a specified remaining [3 Marks) period of part () above. Which option is the best and why? mrion he
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