None You've just won the 1,050,000 Massachusetts statelottery. You must choose one of the following payoutalternatives:35,000 at the beginning of each year for the next 30years, or510,675 todayBeverly Bank will buy and/or sell annuities and/orupfront amounts of any maturity at an APR of 5percent.a. What is the PV of the annuity alternative assumingyou sell it to Beverly Bank?b. An acquaintance has won the lottery and wants thelump-sum payout. You offer to pay her530,000 if she assigns the lottery winnings to you. If sheaccepts the offer what is your dollarprofit?

Part a: Present Value of the Annuity AlternativeWe need to calculate the present value of an annuity…

Answered: You've just won the 1,050,000…

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

Maybepay Life Insurance Co. is selling a perpetual annuity contract that pays $3300 monthly. The contract currently sells for $336,000. a. What is the monthly retun on this investment vehicle? b. What is the APR? c. What is teh effective annual return?
Suppose you find an annuity that pays 8% annual interest, compounded annually. If you invest in this annuity and contribute $10, 000 annually for 10 years, how much money will be in the annuity after 10 years? Enter your answer rounded to the nearest hundred dollars and omit the dollar sign and comma (For example $122, 570.21 should be input as 122600.) Provide your answer below:
Carla Vista Company is considering investing in an annuity contract that will return $34,500 annually at the end of each year for 15 years. Click here to view the factor table. What amount should Carla Vista Company pay for this investment if it earns an 8% return? (For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round answer to 2 decimal places, e.g. 25.25.) Carla Vista Company should pay $
An investor is considering an annuity that pays $40,000 per year for four years. 1. Assuming the first $40,000 is paid in a years time given a discount rate of 4% what should the investor pay for this annuity today? 2. Assuming the first $40,000 is paid out immediately what should the investor pay today? (Asssume same discount rate). 3. If the investor pays $130,000 today and assuming the first paymentarrives in a years time, what would this investment’s internal rate of return be? (Asssume same discount rate). 4. What would the investor pay today if the first payment arrived in 5years time? (Asssume same discount rate). 5. If the investor invests $40,000 per year at the end of the next 4 years what would this be worth in 4 years time? (Asssume same discount rate).
An investment offers $966 per year for 11 years, with the first payment occurring Zyears from now. If the required return is 9 percent, what is the value of the investment? (HINT: Remember that when you calculate the PV of the annuity, the claculator gives you the present value of the annuity 1 period before the annuity starts. So if the annuity starts in year 7, that calculator will to give you the persent value of annuity in year 6. Now you have to bring this number to period O by inputting: N=6 (1 period before the annuity starts, in your case it would be a different number depending when your annuity starts) R=9 FV=Present value of annuity you found in step 1. And you solve for PV)
You agree to repay a loan over five years with the following stream of cash payments: $1,000; $1,100; $1,250; $1,280; and $1,300. If you wish to discount these payments to their present value today using 4%, why can you not use one annuity calculation,?
Someone needs to make the following annuity payments to an individual: £445 paid at the end of each month during the first 15 years and then £448 paid at the end of each 4 months for the following 8 years. Assuming an effective monthly interest rate of 1.3% throughout the entire period, how much total fund the insurer needs to hold today in order to meet these payments? correct answer = 31470.44, NO TABLES, ONLY FORMULAS, PLEASE
Suppose you invest in an annuity that pays 6% interest, compounded annually. You contribute $4,500 each year for 10 years, what is the value of the annuity at the end of 10 years? Enter your answer rounded to the nearest hundred dollars. Omit the dollar sign and comma ($42,570.21 should be entered as 42600.)
a) You deposit $200 monthly into an annuity with the goal of accumulating $180,000 after 30 years. What annual rate, compounded monthly, is required to ?accomplish this b) At retirement, a client has two payment options: a 20-year annuity at $50,000 per year starting after 1 year or a lump sum of $500,000 today. If the client's required rate of return on retirement fund investments is 6% per year, which plan has the higher present ?value and by how much
An insurance company is offering to sell an annuity for $20,000 cash. In return the firm will guarantee to pay the purchaser 20 annual endof-year payments, with the first payment amounting to $1100. Subsequent payments will increase at a uniform 10% rate each year (second payment is $1210; third payment is $1331, etc.). What rate of return would someone who buys the annuity receive?
You have a chance to buy an annuity that pays $25,000 at the beginning of each year for 10 years. You could earn 8.5% on your money in other investments with equal risk. What is the most you should pay for the annuity? You are not required to show calculations but you must list the inputs used such as N, PV, FV, etc. O $346,484.41 O $177,976.57 O $164,033.70
Your financial planner offers you two different investment plans. Plan X is a $22, 000 annual perpetuity. Plan Y is an annuity lasting 20 years and an annual payment, $30,000. Both plans will make their first payment one year from today. At what discount rate would you be indifferent between these two plans

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