he market interest rate is 9 percent and is expected to stay at that level. Consumers can borrow and lend all they want at this rate. Consider each of the following situations. 1) You have just won a million dollar lottery and will receive $50000 a year for the next 20 years. How much is this worth to you today? Suppose you receive the first of 20 payments today. 2) You win the "honest million" jackpot. You can have $1 million today or $60000 per year for eternity (a right that can be passed on to your heirs). Assume you care about your heirs. Which do you prefer? $1 million or the $60000 perpetuity?
he market interest rate is 9 percent and is expected to stay at that level. Consumers can borrow and lend all they want at this rate. Consider each of the following situations. 1) You have just won a million dollar lottery and will receive $50000 a year for the next 20 years. How much is this worth to you today? Suppose you receive the first of 20 payments today. 2) You win the "honest million" jackpot. You can have $1 million today or $60000 per year for eternity (a right that can be passed on to your heirs). Assume you care about your heirs. Which do you prefer? $1 million or the $60000 perpetuity?
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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The market interest rate is 9 percent and is expected to stay at that level. Consumers can borrow and lend all they want at this rate. Consider each of the following situations.
1) You have just won a million dollar lottery and will receive $50000 a year for the next 20 years. How much is this worth to you today? Suppose you receive the first of 20 payments today.
2) You win the "honest million" jackpot. You can have $1 million today or $60000 per year for eternity (a right that can be passed on to your heirs). Assume you care about your heirs. Which do you prefer? $1 million or the $60000 perpetuity?
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