You won a lottery of $1,000,000. Office offered two options: the first one you can take it today a $500,000 today (after tax), or the second option: $50,000 per year for the rest of your life (you are 20 and expected to live a long time, like 200…) if the interest rate is 10%. What is the value of the second option today?
You won a lottery of $1,000,000. Office offered two options: the first one you can take it today a $500,000 today (after tax), or the second option: $50,000 per year for the rest of your life (you are 20 and expected to live a long time, like 200…) if the interest rate is 10%. What is the value of the second option today?
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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You won a lottery of $1,000,000. Office offered two options: the first one you can take it today a $500,000 today (after tax), or the second option: $50,000 per year for the rest of your life (you are 20 and expected to live a long time, like 200…) if the interest rate is 10%. What is the value of the second option today?
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The series of equal payment which is made over indefinite period of time is called as perpetuity. The amount can be constant or have constant increase with a fixed growth rate till infinity.
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