ottery Incorporated has decided to offer winners a choice of $100,000 in 10 years or some amount currently. Assume that Bob's Lottery Incorporated earns a 10 percent after-tax rate of return. What amount should Bob's offer lottery winners currently in order to be indifferent between the two choices? (See Exhibit 3.1) NOTE: Round y
ottery Incorporated has decided to offer winners a choice of $100,000 in 10 years or some amount currently. Assume that Bob's Lottery Incorporated earns a 10 percent after-tax rate of return. What amount should Bob's offer lottery winners currently in order to be indifferent between the two choices? (See Exhibit 3.1) NOTE: Round y
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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Bob's Lottery Incorporated has decided to offer winners a choice of $100,000 in 10 years or some amount currently. Assume that Bob's Lottery Incorporated earns a 10 percent after-tax
Transcribed Image Text:EXHIBIT 3-1 Present Value of a Single Payment at Various Annual Rates of
Return
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
Year 11
Year 12
Year 13
Year 14
Year 15
4%
5%
6%
8% 9% 10% 11% 12%
0.962 0.952 0.943
0.926 0.917 0.909 0.901
0.893
0.925
0.907 0.890
0.842 0.826 0.812
0.797
0.889
0.864
0.731
0.712
0.855
0.823 0.792 0.763
0.735
0.708 0.683
0.659 0.636
0.822 0.784
0.747 0.713
0.681
0.650 0.621
0.593
0.567
0.790 0.746 0.705 0.666 0.630
0.596 0.564 0.535
0.507
0.760 0.711 0.665
0.583 0.547 0.513 0.482 0.452
0.623
0.627 0.582 0.540
0.731 0.677
0.502
0.404
0.467 0.434
0.460 0.424 0.391 0.361
0.703 0.645
0.592 0.544
0.500
0.676 0.614 0.558
0.508
0.463
0.422
0.386 0.352
0.322
0.650 0.585 0.527
0.475
0.429 0.388 0.350 0.317
0.287
0.625 0.557 0.497
0.444 0.397 0.356 0.319
0.286 0.257
0.601 0.530
0.469
0.415 0.368 0.326
0.290
0.258
0.229
0.577
0.505
0.442
0.388
0.340
0.299
0.263
0.232 0.205
0.555 0.481 0.417
0.362 0.315 0.275
0.239 0.209 0.183
7%
0.935
0.873 0.857
0.840 0.816 0.794 0.772 0.751
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