You hold a winning ticket from your provincial lottery. It entitles the bearer to receive annuity payments of $50,000 at the end of each of the next 20 years. Alternatively, the provincial lottery has offered a lump sum payment today of $725,000. Which of the following statements is true? At every possible interest rate the lump sum payment is the best choice. At every possible interest rate, the annuity is the best choice. The best choice depends on the interest rate. You should be able to sell this ticket for more than $1 million. None of the above is correct.

You hold a winning ticket from your provincial lottery. It entitles the bearer to receive annuity payments of $50,000 at the end of each of the next 20 years. Alternatively, the provincial lottery has offered a lump sum payment today of $725,000. Which of the following statements is true? At every possible interest rate the lump sum payment is the best choice. At every possible interest rate, the annuity is the best choice. The best choice depends on the interest rate. You should be able to sell this ticket for more than $1 million. None of the above is correct.

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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Similar questions

A 148. Subject:- finance
Provide manual solutions for below mentioned problems. A social worker deposits a uniform amount of P12,000 at the end of each year in order to get a lump sum of money by the time she will retire at the end of 20 years. If the compound amount factor for this annuity is equal to 36.78559. 1. Compute the nominal interest rate.2. Determine how much will she receive at the end of 20 years.3. Determine the worth of the sinking fund factor in this fund invested. Answer. 1. 6% 2. P441,427.08 3. 0.027184557
(Related to Checkpoint 6.2) (Present value of annuity payments) The state lottery's million-dollar payout provides for $1 million to be paid in 25 installments of $40,000 per payment. The first $40,000 payment is made immediately, and the 24 remaining $40,000 payments occur at the end of each of the next 24 years. If 12 percent is the discount rate, what is the present value of this stream of cash flows? If 24 percent is the discount rate, what is the present value of the cash flows? a. If 12 percent is the discount rate, the present value of the annuity due is $ b. If 24 percent is the discount rate, the present value of the annuity due is $ *** (Round to the nearest cent.) (Round to the nearest cent.)
What is the future value of a 5-year ordinary annuity with annual payments of $ 702, evaluated at a 13.84 percent interest rate? Enter your answer to the nearest $.01. Do not use $ or, signs in your answer. Enter your answer as a positive number. Your Answer:
You just won a special lottery which will entitle you to an annual payment $45000 for 10 years, but the first payment won't start until 5 years later (i.e. 1st payment at the end of the 5th year). If you plan to immediately deposit every payment into an annuity product that gives you 5.62% APR with annual compounding, how much is your account balance at the end of the lottery payment plan (i.e. when you receive the last payment)?
You win the lottery and the State is going to pay you some payments every year, and a final payment of 1,000,000 dollars after 30 years. Assuming a discount rate of 10 percent, in absolute value terms what is the difference in the present value of the State paying the million today or at the end of the 30 years? (a) 0 (b) 942691.55 (c) 1306897.64 (d) 234566.22
You like to buy lottery tickets every week. The lottery pays an insurancecompany that pays the winner an annuity. If you win a $60,000,000 lotteryand elect to take an annuity, you get $3,000,000 per year at the beginningof each year for the next 20 years.a. How much must the state pay the insurance company if money can earn3 percent?b. How much interest is earned on this lump-sum payment over the 20 years?c. If you take the cash rather than the annuity, the state pays you $30,000,000in one lump sum today. You must pay 40 percent of this in taxes. If you arecurrently working and invest this money at 6 percent, how much moneywill you have in a mutual fund at the end of 20 years?d. Are you better off with the annuity, or should you take the cash? Explain.
Suppose you just won the state lottery, and you have a choice between receiving $2,625,000 today or a 20-year annuity of $270,000, with the first payment coming one year from today. What rate of return is built into the annuity? Disregard taxes. a. 7.83% b. 10.29% c. 8.13% d. 12.04% e. 9.38%
A winner of the multi - state lotto won a one time payout and decided to invest part of it into an annuity. If the winner invests $6,700,000.00 into a 30 year annuity that pays 3.5%, compounded monthly and makes each month payments. What is the amount of each month payments? The payment would be $. (Round to 2 decimal places.)
An accounting firm agrees to purchase a computer for $130,000 (cash on delivery) and the delivery date is in 270 days. How much do the owners need to deposit in an account paying 0.55%compounded quarterly so that they will have $130,000 in 270 days? (a) State the type. sinking fundamortization ordinary annuitypresent valuefuture value (b) Answer the question. (Round your answer to the nearest cent.)

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