Calculate the present value of an annuity

Assignment Help Financial Management

Reference no: EM13763899

Calculate the present value of an annuity (as a series of uniform payments) (use Table 7). 2a. Beth has won the $40 million lottery!! She will receive $2million per year for 20 years. If Beth could invest the money at 7% interest what is the $20 million lottery really worth today?(i.e., is a $20 million lottery really a $20 million lottery?) (Another way of stating this problem would be What is the most a prize consolidation company would be willing to pay Beth in a lump sum today for her lottery winnings if their discount rate is 7%?) 2b. If the State can invest its lottery tax money at 10%, what is the $40 million lottery prize actually costing the State today? 2c. The lottery offers Beth an alternative---to take a lump sum today of $7,469,400 instead of the annual payments. What interest/discount rate is the lottery charging Beth if she takes the lump sum instead of the annual payments?

Reference no: EM13763899

Questions Cloud

Complete the contract and pay them a lump sum settlement now : Three years ago, Sam purchased a farm on contract from an older lady for $149,000 at 7% interest over 15 years. The lady died unexpectedly and the heirs would like Sam to pay off the contract now, which has a current remaining balance of $130,000 wit..

Accumulated value of an annuity certain : Accumulated Value of an Annuity Certain. Formula for annuity certain is ((1+j%/12)^60-1)/(j%/12)=66.67.... but no software can apparently solve this! An accumulated value of an annuity certain with n=60, and interest = j%/12, is equal to=66.67.........

What is the treynor ratio : A portfolio has an average return of 9.7 percent, a standard deviation of 8.6 percent, and a beta of .72. The risk-free rate is 2.1 percent. What is the Treynor ratio?

Lender actually charging on the repayment agreement : Bill Farmer has had some financial problems and cannot pay the $200,000 loan that is due next week (i.e. now). Bill's lender agrees to accept 5 annual payments of $46,000 each for the next 5 years instead, with the first payment due one year from now..

Calculate the present value of an annuity : Calculate the present value of an annuity (as a series of uniform payments) (use Table 7). 2a. Beth has won the $40 million lottery!! She will receive $2million per year for 20 years. If Beth could invest the money at 7% interest what is the $20 mill..

What is the present value of the investment : A business owner is considering making an investment which will return the following cash flow at the end of each year: What is the present value of the investment (i.e., how much could they afford to pay for the investment) assuming a 10% interest (..

Purchase bonds for this absolute matching strategy : A company must make yearly payments starting at $100,000 and increasing by 6% every year for 10 years. Payments are due at the end of each year. They can invest in a portfolio of coupon-paying bonds that vary in term from 1 to 10 years (a total of 10..

Which alternative should you prefer if the interest rate : You can buy a car for $20,000, or you can lease it for 36 monthly payments of $350 each, with the first payment due immediately. At the end of the 36 months the car will be worth $10,000. Which alternative should you prefer if the interest rate (APR)..

How much should save each month : Sarah wants to go buy a house in Hawaii 15 years from now. She estimates she'll need $400,000 at that time to make this purchase. She plans to save each month at the end of the month for the next 15 years, and invest it at a rate of 8% a year, compou..

User Account

All Pages