ZuoTi.Pro
Question

I recently found a real-life advertisement in the newspaper. (only the phone has been changed). Suppose...

I recently found a real-life advertisement in the newspaper. (only the phone has been changed). Suppose that you have won a $20,000,000 lottery paid in 20 installments. How much would be a fair price to be paid today for the assignment of this prize? Assume the money could be invested at 6%. (Assume the lottory pays out an ordinary annuity. Round your answer to the nearest cent.

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

$20,000,000 20 4 Lotteryv amount Number of Payments Annual Payment Interest rate $1,000,000 (Assumed) 5% Fair Value Today -Present Value of future payments -1,000,000( P/A,5%, 20) $12,462,210.34 D6*PV(D7,D5,-1,0) 10 12 Hence Fair Value of the lottery today is $12,462,210.34 14

Formula sheet

A B C D E F G
2
3
4 Lottery amount 20000000
5 Number of Payments 20
6 Annual Payment 1000000 (Assumed)
7 Interest rate 0.05
8
9 Fair Value Today =Present Value of future payments
10 =1,000,000*(P/A,5%,20)
11 =D6*PV(D7,D5,-1,0) =D6*PV(D7,D5,-1,0)
12
13 Hence Fair Value of the lottery today is =D11
14
0 0
Add a comment
Know the answer?
Add Answer to:
I recently found a real-life advertisement in the newspaper. (only the phone has been changed). Suppose...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • I recently found a real-life advertisement in the newspaper. (Only the phone number has been changed.)...

    I recently found a real-life advertisement in the newspaper. (Only the phone number has been changed.) Suppose that you have won a $20,000,000 lottery, paid in 20 annual installments. How much would be a fair price to be paid today for the assignment of this prize? Assume the money could be invested at 6%. (Assume the lottery pays out as an ordinary annuity. Round your answer to the nearest cent.) la-7:30p LOAN WANTED: $150,000, se-sold unless ffordable. I cured by...

  • Recent sales of some real estate and record profits make it possible for a manufacturer to...

    Recent sales of some real estate and record profits make it possible for a manufacturer to set aside $900,000 in a fund to be used for modernization and remodeling. How much can be withdrawn from this fund at the beginning of each half-year for the next 5 years if the fund earns 7.3%, compounded semiannually? (a) Decide whether the problem relates to an ordinary annuity or an annuity due. O ordinary annuity annuity due (b) Solve the problem. (Round your...

  • 7. Present value of annuities and annuity payments The present value of an annuity is the...

    7. Present value of annuities and annuity payments The present value of an annuity is the sum of the discounted value of all future cash flows. You have the opportunity to invest in several annuities. Which of the following 10-year annuities has the greatest present value (PV)? Assume that all annuities earn the same positive interest rate. An annuity that pays $500 at the end of every six months An annuity that pays $1,000 at the end of each year...

  • Since it wasn't answered (ran out of time), I changed my question so that ONLY the...

    Since it wasn't answered (ran out of time), I changed my question so that ONLY the correct answers are on here. Question 1 Interest is the difference between the amount borrowed and the principal. FALSE Question 2 Compound interest is computed on the principal and any interest earned that has not been paid or withdrawn. TRUE Question 3 When the periodic payments are not equal in each period, the future value can be computed by using a future value of...

  • Module 9 – Foreign Exchange Rate Risk Homework Exercise Part 1 1. Suppose that the EUR:USD...

    Module 9 – Foreign Exchange Rate Risk Homework Exercise Part 1 1. Suppose that the EUR:USD is trading at 1.3342; the GBP:JPY is trading at 67.7600; and the EUR:GBP is trading at 0.8165. What should the USD:JPY rate be? 2. If a price index for US goods stands at 118.93 and the same price index for European goods (i.e., computed from the same consumption basket) stands at 183.34; what is the fair (under the theory of PPP) spot exchange rate...

  • please help answer these Financial Analysis Exercise #1 You are the newest Financial Analyst in Investments,...

    please help answer these Financial Analysis Exercise #1 You are the newest Financial Analyst in Investments, you need to demonstrate your prowess in Excel, your outstanding written skills and ability to communicate. Mr. Richards is the Executive Vice President and Chief Investment officer in your new firm. You are being asked to complete a series of “pet” projects for Mr. Richards. You have been told not to try to impress him, just do the work and stick to the facts....

  • internal project 1 anything helps! thank you!! Instructions: Study the case that starts on page 3...

    internal project 1 anything helps! thank you!! Instructions: Study the case that starts on page 3 carefully. Then write concise answers to the following questions regarding the internal control system of Duarf, Inc. Clearly label your responses with proper headings and subheadings. Be very specific and precise. Answers that appear to be beating around the bush will not get any credit. 1. What are the controls in place that under normal conditions should function well to prevent embezzlements or frauds?...

  • Please read the article and answer about questions. You and the Law Business and law are...

    Please read the article and answer about questions. You and the Law Business and law are inseparable. For B-Money, the two predictably merged when he was negotiat- ing a deal for his tracks. At other times, the merger is unpredictable, like when your business faces an unexpected auto accident, product recall, or government regulation change. In either type of situation, when business owners know the law, they can better protect themselves and sometimes even avoid the problems completely. This chapter...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT