The implied interest rate in selecting the payoff style

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Reference no: EM131949800

1. What is the maximum purchase price of an asset that gives a monthly net cash flow of $444 at the end of the month? The expected holding period is 11 years, the estimated selling price at that time is $1,206, and you want at least a 16.25% return per year.

2. If you won the lottery and had the choice of a lump-sum payoff or an annuity payoff, what factors would you consider besides the implied interest rate (indifference interest rate) in selecting the payoff style? Explain the factors. Then, provide a quantitative example to illustrate your choice.

Reference no: EM131949800

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