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IgorC [24]
3 years ago
15

38) A lottery ticket states that you will receive $250 every year for the next ten years. a. What is the present value of the wi

nning lottery ticket if the discount rate is 6% and it is an ordinary annuity? b. What is the present value of the winning lottery ticket if the discount rate is 6% and it is an annuity due? c. What is the difference between the ordinary annuity and annuity due?
Business
1 answer:
Stells [14]3 years ago
5 0

Answer:

Instructions are listed below.

Explanation:

Giving the following information:

A lottery ticket states that you will receive $250 every year for the next ten years.

A)  i=0.06      ordinary annuity

PV= FV/(1+i)^n

FV= {A*[(1+i)^n-1]}/i

A= annual payment

FV= {250*[(1.06^10)-1]}/0.06= $3,295.20

PV= 3,295.20/1.06^10=1,840.02

B) i=0.06 annuity due (beginning of the year)

FV= 3,295.20 + [(250*1.06^10)-1]= $3492.91

PV= 3492.91/1.06^10= $1,950.42

C) The interest gets compounded for one more period in an annuity due.

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Answer:

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3)You have won a contest and are allowed to choose between two prizes. One option is to receive$200 today and another $200 one y
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Answer:

C)25 percent

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Present value is the sum of discounted cash flows.

The interest rate where the present value of the two two prizes would be identical can be found using a financial calculator and trial and error method.

Option A :

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To find the PV using a financial calacutor:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. After inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.

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