A winner of the multi - state lotto won a one-timepayout and decided to invest part of it into an annuity. Ifthe winner invests $6, 700,000.00 into a 30 year annuitythat pays 3.5%, compounded monthly and makes eachmonth payments. What is the amount of each monthpayments? The payment would be $ . (Round to 2decimal places.)

The objective of the question is to calculate the monthly payments of an annuity given the principal…

Answered: A winner of the multi - state lotto won…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter11: Simulation Models

Section: Chapter Questions

Problem 52P

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The IRR is the discount rate r that makes a project have an NPV of 0. You can find IRR in Excel with the built-in IRR function, using the syntax =IRR(range of cash flows). However, it can be tricky. In fact, if the IRR is not near 10%, this function might not find an answer, and you would get an error message. Then you must try the syntax =IRR(range of cash flows, guess), where guess" is your best guess for the IRR. It is best to try a range of guesses (say, 90% to 100%). Find the IRR of the project described in Problem 34. 34. Consider a project with the following cash flows: year 1, 400; year 2, 200; year 3, 600; year 4, 900; year 5, 1000; year 6, 250; year 7, 230. Assume a discount rate of 15% per year. a. Find the projects NPV if cash flows occur at the ends of the respective years. b. Find the projects NPV if cash flows occur at the beginnings of the respective years. c. Find the projects NPV if cash flows occur at the middles of the respective years.
In the financial world, there are many types of complex instruments called derivatives that derive their value from the value of an underlying asset. Consider the following simple derivative. A stocks current price is 80 per share. You purchase a derivative whose value to you becomes known a month from now. Specifically, let P be the price of the stock in a month. If P is between 75 and 85, the derivative is worth nothing to you. If P is less than 75, the derivative results in a loss of 100(75-P) dollars to you. (The factor of 100 is because many derivatives involve 100 shares.) If P is greater than 85, the derivative results in a gain of 100(P-85) dollars to you. Assume that the distribution of the change in the stock price from now to a month from now is normally distributed with mean 1 and standard deviation 8. Let EMV be the expected gain/loss from this derivative. It is a weighted average of all the possible losses and gains, weighted by their likelihoods. (Of course, any loss should be expressed as a negative number. For example, a loss of 1500 should be expressed as -1500.) Unfortunately, this is a difficult probability calculation, but EMV can be estimated by an @RISK simulation. Perform this simulation with at least 1000 iterations. What is your best estimate of EMV?
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A 5-year annuity of ten $5,300 semiannual paymentswill begin 9 years from now, with the first payment coming 9.5 years from now. If thediscount rate is 12 percent compounded monthly, what is the value of this annuityfive years from now? What is the value three years from now? What is the currentvalue of the annuity?
#17FAVORABLE UNFAVORABLEMARKET MARKETEQUIPMENT ( $) ($)Sub 100 300,000 –200,000Oiler J 250,000 –100,000Texan 75,000 –18,000For example, if Ken purchases a Sub 100 and ifthere is a favorable market, he will realize a profitof $300,000. On the other hand, if the market is unfavorable, Ken will suffer a loss of $200,000. ButKen has always been a very optimistic decisionmaker.(a) What type of decision is Ken facing?(b) What decision criterion should he use?(c) What alternative is best? #18Although Ken Brown (discussed in Problem 3-17) is the principal owner of Brown Oil, his brother Bob iscredited with making the company a financial success. Bob is vice president of finance. Bob attributeshis success to his pessimistic attitude about business and the oil industry. Given the information fromProblem 3-17, it is likely that Bob will arrive at a different decision. What decision criterion should Bobuse, and what alternative…
Suppose that you want to invest $10,000 in the stock market by buying shares in one of two companies: A and B. Shares in company A though risky, could yield a 50% return on investment during the next year. If the stock market if conditions are not favorable (bear market) the stock may lose 20% of it value. Company B provides safe investments with 15% return in a bull market and only 5% in a bear market Ali the applications you have consulted are predicting a 60% chance for a bull market and 40% for a bear market. Where you invest your money? Construct a decision tree.
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A salesperson for Fuller Brush has three options: quit,put forth a low-effort level, or put forth a high-effort level.Suppose for simplicity that each salesperson will either sell$0, $5,000, or $50,000 worth of brushes. The probability ofeach sales amount depends on the effort level in the mannerdescribed in Table 8.If the salesperson is paid $w, then he or she earns abenefit w1/2. Low effort costs the salesperson 0 benefit units,while high effort costs 50 benefit units. If the salespersonwere to quit Fuller and work elsewhere, then he or she couldearn a benefit of 20. Fuller wants all salespeople to put fortha high-effort level. The question is how to minimize the costof doing it. The company cannot observe the level of effortput forth by a salesperson, but they can observe the size ofhis or her sale. Thus, the wage is completely determined bythe size of the sale. Fuller must then determine w0 wagepaid for $0 in sale, w5000 wage paid for $5,000 in sales,and w50,000 wage paid for…
Suppose you are 45 and have a $410,000 face amount, 15-year, limited-payment, participating policy (dividends will be used to build up the cash value of the policy). Your annual premium is $1,435. The cash value of the policy is expected to be $16,400 in 15 years. Using time value of money and assuming you could invest your money elsewhere for a 7 percent annual yield, calculate the net cost of insurance. Use (Exhibit 1-A, Exhibit 1-B, Exhibit 1-C, Exhibit 1-D)
You are planning to save for retirement over the next 30 years.To do this, you will invest $800 a month in a stock account and $350 a month in abond account. The return of the stock account is expected to be 11 percent, and thebond account will pay 6 percent. When you retire, you will combine your money intoan account with an 8 percent return. How much can you withdraw each month fromyour account assuming a 25-year withdrawal period?

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