a. What is the PV of the annuity alternative assuming you sell it to Beverly Bank? b. An acquaintance has won the lottery and wants the annuity payout. You offer to pay her 135,000 if she'll assign the lottery to you. If she accepts the offer what is your profit?

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
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Ee 173.

4. You've just won the 5,000,000 Massachusetts state lottery. You must choose one of the
following payout alternatives:
26
125,000 at the end of each year for the next 40 years, or
1,950,000 today
Beverly Bank will buy and/or sell annuities and/or upfront amounts of any maturity at an
APR of 6.50%.
a. What is the PV of the annuity alternative assuming you sell it to Beverly Bank?
b. An acquaintance has won the lottery and wants the annuity payout. You offer to pay her
135,000 if she'll assign the lottery to you. If she accepts the offer what is your profit?
Transcribed Image Text:4. You've just won the 5,000,000 Massachusetts state lottery. You must choose one of the following payout alternatives: 26 125,000 at the end of each year for the next 40 years, or 1,950,000 today Beverly Bank will buy and/or sell annuities and/or upfront amounts of any maturity at an APR of 6.50%. a. What is the PV of the annuity alternative assuming you sell it to Beverly Bank? b. An acquaintance has won the lottery and wants the annuity payout. You offer to pay her 135,000 if she'll assign the lottery to you. If she accepts the offer what is your profit?
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