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You just won a lottery that promises to pay you $1 million exactly 10 years from today. Because the $1 million payment is guaranteed by the state in which you live, opportunities exist to sell the claim today for an immediate lump-sum cash payment.
What is the least you will sell your claim for if you could earn the following rates of return on similar-risk investments during the 10-year period? Make sure to show your calculations for each the interest rates.
1. 8 percent
2. 9 percent
3. 15 percent
Rework part (a) under the assumption that the $1 million payment will be received in 15 rather than 10 years.
Based on your findings in parts (a) and (b), discuss the effect of both the size of the rate of return and the time until receipt of payment on the present value of a future sum.
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McEwan Industries sells on terms of 3/10, net 25. Total sales for the year are $1,711,000; 40% of the customers pay on the 10th day and take discounts, while the other 60% pay, on average, 68 days after their purchases. What is the average amount of ..
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How high can the discount rate be before you would reject the project?
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Stephanie Enterprises has bonds that have a 9 percent coupon rate. The interest is paid semiannually and the bonds mature in 8 years. Their par value is $1,000. The prices of the bonds are $1,070, and are callable in 5 years with a call price of $1,0..
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