a. Assume that you just $25 million in the California lottery. You have the option of the state paying you 20 annual payments of $1.25 million at the end of each year, or taking all the money up front. If the rate of return on securities of similar risk to the lottery earning ( e.g., the rate on 20-year U.S. Treasury bonds) is 5%, what is the present value of your winnings? Option 1: A lump sum payment of $25 million up front Option 2: Twenty annual payments of $1.25 million HINT: This is an ordinary annuity. b. Considering this, which option should you take? Explain your answer
a. Assume that you just $25 million in the California lottery. You have the option of the state paying you 20 annual payments of $1.25 million at the end of each year, or taking all the money up front. If the rate of return on securities of similar risk to the lottery earning ( e.g., the rate on 20-year U.S. Treasury bonds) is 5%, what is the present value of your winnings? Option 1: A lump sum payment of $25 million up front Option 2: Twenty annual payments of $1.25 million HINT: This is an ordinary annuity. b. Considering this, which option should you take? Explain your answer
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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a. Assume that you just $25 million in the California lottery. You have the option of the state paying you 20 annual payments of $1.25 million at the end of each year, or taking all the money up front. If the rate of return on securities of similar risk to the lottery earning ( e.g., the rate on 20-year U.S. Treasury bonds) is 5%, what is the present value of your winnings?
Option 1: A lump sum payment of $25 million up front
Option 2: Twenty annual payments of $1.25 million
HINT: This is an ordinary annuity. b. Considering this, which option should you take? Explain your answer
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