A lottery ticket costs £1. The following table shows the different prizes available together withthe chance of winning and the delay before receiving the prize money.Time before paymentPrizeProbability of winning1 day£201 in 501 in 1,0001 day£2001 week£2,0001 in 50,0001 in 2 million2 weeks£200,0004 weeks£2 million1 in 14 millionCalculate the expectation of the present value of the prize money assuming an effective rate ofinterest of 0.016% per day.

Expected value of prize money is the weighted average of the prize money multiplied by the…

A lottery ticket costs £1. The following table shows the different prizes available together with the chance of winning and the delay before receiving the prize money. Time before payment Prize Probability of winning 1 in 50 1 day £20 1 day £200 1 in 1,000 1 week £2,000 1 in 50,000 £200,000 1 in 2 million 2 weeks £2 million 1 in 14 million 4 weeks Calculate the expectation of the present value of the prize money assuming an effective rate of interest of 0.016% per day.

A lottery ticket costs £1. The following table shows the different prizes available together with the chance of winning and the delay before receiving the prize money. Time before payment Prize Probability of winning 1 in 50 1 day £20 1 day £200 1 in 1,000 1 week £2,000 1 in 50,000 £200,000 1 in 2 million 2 weeks £2 million 1 in 14 million 4 weeks Calculate the expectation of the present value of the prize money assuming an effective rate of interest of 0.016% per day.

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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The top prize for the state lottery is $105,704,000. You have decided it is time for you to take a chance and purchase a ticket. Before you purchase the ticket, you must decide whether to choose the cash option or the annual payment option. If you choose the annual payment option and win, you will receive $105,704,000 in 25 equal payments of $4,228,160—one payment today and one payment at the end of each of the next 24 years. If you choose the cash payment, you will receive a one-time lump sum payment of $57,293,079.68. At what interest rate would you be indifferent between the cash and annual payment options? (Round answer to 0 decimal places, e.g. 15%.) Interest rate %
For each of the following problems, (a) draw the cash flow diagram; (b) present clean and clear manual solutions to the problem; (c) highlight the final answer (only the final answer as required by the problem) by enclosing it within a box. The winner of a lottery will receive $10,000 per week for the rest of her life. If the winner’s interest rate is 7% compounded weekly, what is the present worth of this jackpot?
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You have just won a large lottery prize. The Lottery Company says the prize will be paid to you in 8 instalments of $70000, with the first payment occurring today (beginning of year 1), and subsequent payments occurring at the beginning of each year. If the typical market interest rates suggest that you can invest money and earn an interest rate of 9%, compounded annually, then how much is the lottery actually worth today? The solution, please. The correct answer is 422307.
A lottery claims its grand prize is $10 million, payable over 5 years at $2,000,000 per year. If the first payment is made immediately, what is the grand prize really worth? Use an interest rate of 4%. The real value of the grand prize is $enter your response here. (Round your response to the nearest dollar.)
a) You have won a lottery and can choose to receive the payment under one of the following two arrangements: (1) $250,000 every six months forever, or (2) fixed payments of $X every six months for 15 years. Suppose the relevant half-yearly rate is 5% and the payments under both arrangements will start immediately. i) How much is the lottery worth today under Arrangement (1)? ii) What is the amount of $X in Arrangement (2) so that it has the same value as Arrangement (1)? b) Calculate the total amount of interest on interest earned five years from now if $100,000 is deposited into a bank account today that earns 5% interest per year. c) ABC Corporation issued at par $100 million semi-annual coupon-paying bonds on January 1, 2010. The bond’s YTM at issuance was 8% (APR). The bond matures on January 1, 2020. i) Compute the market value of this bond on January 1, 2011 if it was priced to produce an effective semi-annual yield to maturity of 6% on that date. ii)…
The top prize for the state lottery is $105,000,000. You have decided it is time for you to take a chance and purchase a ticket. Before you purchase the ticket, you must decide whether to choose the cash option or the annual payment option. If you choose the annual payment option and win, you will receive $105,000,000 in 20 equal payments of $5,250,000—one payment today and one payment at the end of each of the next 19 years. If you choose the cash payment, you will receive a one-time lump sum payment of $63,830,111.58. You can invest the proceeds and earn 7%. At what interest rate would you be indifferent between the cash and annual payment options? (Round factor values to 3 decimal places, e.g. 1.521 and final answer to 0 decimal places, e.g. 15%.)Click here to view the PV Table. Interest rate %
Suppose you have won $1,122,000 in the lottery. You have two options. Option 1: Take a lump sum of $953,700. Option 2: Receive the entire amount of your winnings in 240 monthly installments of $4,675.00. Either way, you have decided to be very disciplined about this money and invest all you receive. a. Suppose you take Option 1 and deposit the lump sum of $953,700 into an account that pays an APR of 4% compounded monthly. Find the account balance after 20 years. Option 1: $ _____________ b. Suppose you take Option 2 and deposit your monthly installments of $4,675 into an account with the same terms: APR of 4% compounded monthly. Find the account balance after 240 monthly deposits. Option 2: $ _____________ c. How much do you gain by taking the money in a lump sum (Option 1)? Gain by Choosing Option 1: $ _____________
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I recently found a real-life advertisement in the newspaper. (Only the phone number has been changed.) Suppose that you have won a $10,000,000 lottery, paid in 20 annual installments. How much would be a fair price to be paid today for the assignment of this prize? Assume the money could be invested at 5%. (Assume the lottery pays out as an ordinary annuity. Round your answer to the nearest cent.) $
You just won the TVM Lottery. You will receive $1 million today plus another 10 annual payments that increase by $700, 000 per year. Thus, in one year you receive $1.70 million. In two years, you get $2.40 million, and so on. If the appropriate discount rate is 8.0 percent, what is the value of your winnings today? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e. g., 1,234,567.89.)

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