Question
You just won the lottery, which will pay you $1,000 a year until you pay it off. The current interest rate is 5%. The first
You just won the lottery, which will pay you $1,000 a year until you pay it off. The current interest rate is 5%. The first payment happens in 1 year. a) As we know the lottery will pay 10 times, what is this lottery actually worth today? b) Forget about what you got in part a), if you know the prize is worth $10,000, and you will still receive $1000 a year until the prize is paid off. The interest rate is still 5%. How long does it take for you to be paid off? c) It turns out the prize would pay you $1000 a year forever. For the first 4 years, the interest rate is 5%, then the rate falls into 4% for the next 3 years, then goes up to 6% forever. What is your prize worth today? I know how to do this with excel but the instructor is requiring we show our work. Can not have any excel, all formulas.
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