For winners of the California SuperLotto Plus, the choice is between a lump sum and annual payments that increase from 2.5% for the first year to 2.7% for the second year and then increase by 0.1% per year to 5.1% for the 26th payment. The lump sum is equal to the net proceeds of bonds purchased to fund the 26 payments. This is estimated at 45% to 55% of the lump sum amount. At what interest rate is the present worth of the two payment plans equivalent if the lump sum is 45%? If it is 55%?
For winners of the California SuperLotto Plus, the choice is between a lump sum and annual payments that increase from 2.5% for the first year to 2.7% for the second year and then increase by 0.1% per year to 5.1% for the 26th payment. The lump sum is equal to the net proceeds of bonds purchased to fund the 26 payments. This is estimated at 45% to 55% of the lump sum amount. At what interest rate is the present worth of the two payment plans equivalent if the lump sum is 45%? If it is 55%?
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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For winners of the California SuperLotto Plus, the choice is between a lump sum and annual payments that increase from 2.5% for the first year to 2.7% for the second year and then increase by 0.1% per year to 5.1% for the 26th payment. The lump sum is equal to the net proceeds of bonds purchased to fund the 26 payments. This is estimated at 45% to 55% of the lump sum amount. At what interest rate is the present worth of the two payment plans equivalent if the lump sum is 45%? If it is 55%?
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