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vredina [299]
4 years ago
7

Kristina just won the lottery, and she must choose among three award options. She can elect to receive a lump sum today of $62 m

illion, to receive 10 end-of-year payments of $9.5 million, or to receive 30 end-of-year payments of $5.6 million.
(a) If she thinks she can earn 7% annually, which should she choose?
(b) If she expects to earn 8% annually, which is the best choice?
(c) If she expects to earn 9% annually, which option would you recommend?
(d) Explain how interest rates influence her choice.

Business
1 answer:
xxMikexx [17]4 years ago
6 0

Answer:

a. Best deal is 30 end-of-year payments of $5.6 million

b. Best deal is 10 end-of-year payments of $9.5 million

c. Best deal is lump sum today of $62 million

Explanation:

Please see attachment for workings.

d. As the interest rate increases, the duration of value shortens. That is as the interest rate increases, the best choose based on their payment duration reduces

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A financial advisor offers you two investment opportunities. Both offer a rate of return of 11%. Investment A promises to pay yo
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Answer:

The value of x is 566.36

Explanation:

The value of x should be such that the present value of both Investments is the same when discounted at a rate of 11%. To calculate the present value, we use the following formula,

Present Value = CF 1 / (1+r)  +  CF 2 / (1+r)^2 + ... + CFn / (1+r)^n

Where,

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So, we equate both the present value of Investment A and B to calculate the value of x.

Present Value of A = Present Value of B

450/(1.11)  +  650/(1.11)^2  +  850/(1.11)^3 = 850/(1.11)  +  x/(1.11)^2  +  450/(1.11)^3

1554.472661  =  765.7657658  +  x/(1.11)^2  +  329.0361216

1554.472661  -  765.7657658  -  329.0361216  =  x/(1.11)^2

459.6707736 * (1.11)^2  =  x

x = 566.3603602 rounded off to 566.36

3 0
3 years ago
g An increase in supply is represented by Group of answer choices a rightward shift of the supply curve. a leftward shift of the
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Answer:

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7 0
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Read 2 more answers
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Answer:

E $75

Explanation:

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A

Ke= r_f + \beta (r_m-r_f)

risk free = 0.045

rate premium market = (market rate - risk free) =  0.055

beta(non diversifiable risk) = 0.93

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B 9.615% - 1% = 8.615% return of 9.15% we should <u>Accept</u>

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G cost of 11.615% with return of 13.00% <u>Accepted</u>

We accept three projectthus, we require $75

7 0
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