Reference no: EM132535500
-Suppose you just won the state lottery, and you have a choice between receiving $2,550,000 today or a 20-year annuity of $250,000, with the first payment coming one year from today. What rate of return is built into the annuity?
-Suppose you have a credit card with an outstanding of 8,00,000Tk. and consequently has an end of month payment of 40,000Tk. You can no longer take the burden of this high amount of payment, so you want to close the credit card by paying out the outstanding amount. However you don' t have 8 lac Tk. now, so you are thinking of taking a loan of 10 lac Tk. with a 10% annual interest rate to be paid within 5 years. Will you take the loan? Will it be comparatively beneficial for you than the credit card? Why?
-James Green is considering building an investment portfolio (Portfolio Z) containing two assets, X and Y. Asset X will represent 40% of the dollar value of the portfolio and asset Y will account for the other 60%. The returns over 3 years of the two assets X and Y are provided below:
Years X Y
2010 10% 35%
2011 12% 20%
2012 15% 17%
question: 1. Will it be beneficial for James Green to invest in the portfolio? Briefly explain why.
2. If market return is 12% and risk-free rate of return is 4.7%, then find the coefficient of non-diversifiable risk of Portfolio Z, where required return is same as the expected return of the portfolio.
4.You are considering two lottery payment options: Option A pays $10,000 today and Option B pays $20,000 at the end of ten years. Assume you can earn 6 percent on your savings. Which option will you choose if you base your decision on present values? Which option will you choose if you base your decision on future values? Explain why your answers are either the same or different.
5.You are considering two annuities, both of which pay a total of $20,000 over the life of the annuity. Annuity A pays $2,000 at the end of each year for the next 10 years. Annuity B pays $1,000 at the end of each year for the next 20 years. Which annuity has the greater value today? Is there any circumstance where the two annuities would have equal values as of today? Explain
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