The winner of a multistate mega millions lottery jackpot worth $175 million was given the option of taking payments of $7 million per year for 25 years, beginning 1 year from now, or taking $109.355 million now. The interest rate that renders the two options equivalent to each other is closest to: (a) 4% (b) 5% (c) 6% (d) 7%

The winner of a multistate mega millions lottery jackpot worth $175 million was given the option of taking payments of $7 million per year for 25 years, beginning 1 year from now, or taking $109.355 million now. The interest rate that renders the two options equivalent to each other is closest to: (a) 4% (b) 5% (c) 6% (d) 7%

Financial Accounting: The Impact on Decision Makers

10th Edition

ISBN:9781305654174

Author:Gary A. Porter, Curtis L. Norton

Publisher:Gary A. Porter, Curtis L. Norton

Chapter9: Current Liabilities, Contingencies, And The Time Value Of Money

Section: Chapter Questions

Problem 9.20MCE

See similar textbooks

Similar questions

Assume you won a worldwide lottery that pays $5 million in year 0, $5 million in year 1, and $200,000 in years 5 through 100. Assuming that 100 years is as “long” as infinity, calculate the perpetual equivalent annual worth for years 1 through infinity at an interest rate of 10% per year. (Enter your answer in dollars and not in millions.) The perpetual equivalent annual worth for years 1 through infinity is $
You have won the lottery! The lottery officials have given you a choice between receiving (A) $15,000,000 today, or (B) $1,000,000 at the end of each of the next 20 years. Assuming a market interest rate of 4% (compounded annually), which option is worth more to you today, and by how much?
You are the lucky winner of the Ohio Lottery ! Congratulations. The Lottery tells you that you have won a $20,000,000 prize that will be paid in annual installments of $1,000,000 for 20 years. If interest rates on alternative investments in the market are 8%, what is the actual value (PV) of your prize? Round to the nearest 1,000, and show your work.
A lottery claims its grand prize is $15 million, payableover five years at $3,000,000 per year. If the firstpayment is made immediately, what is this grand prizereally worth? Use an interest rate of 7%
The winner of a lottery is given a choice of $1,000,000 cash today or $2,000,000 paid out as follows: $100,000 cash per year for 20 years with the first payment today and 19 subsequent annual payments thereafter. The inflation rate is expected to be constant at 4%/yr over the award period and the winner’s TVOM (real interest rate) is 3.5%/yr. Solve, a. Which choice is better for the winner? Neglect the effect of taxes, life span, and uncertainty. b. At what value of inflation are the two choices economically equivalent? c. What would you do if you do NOT neglect the effect of life span and uncertainty?
lottery winner has a decision between a lump sum of $1,000,000 or a 20 year annuity of $100,000 paid at the end of each of the next 20 years. If the lottery winner could invest or borrow funds at an annual effective interest rate of 5%, which alternative would be preferred and by how much in present value?
Assume you win a lottery, and you are offered the following stream of payments by the lottery commission: $25,000 today, $32,000 one year from now, another $32,000 two years from now, and a final payment of $55,000 three years from now. You accept the offer. If you invest all of these proceeds at 6% compounded annually and extract nothing from the investment, how much will you have at the end of the fourth year? Excel Formula Please
The lottery commission is offering the winner of a recent jackpot a payout of 15 yearly payments $209,000 with the first payment occurring one year from today. As an alternative, the commission would also like to offer the winner (and their heirs) a series of yearly payments every year in perpetuity, again with the first payment occurring one year from today. If the commission uses a discount rate of 5%, what payment should the commission offer in the second option in order to make the two options equivalent in present value terms? Enter your answer as a positive number and round 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)…
Here's a question you and 11 coworkers won 19 million which is 1,583,333.33 each from a lottery. If we are assuming you each received your share over 18 years and state lottery earns a 6 percent return on its funds , what is the present value of your prize before taxes if you request the up front cash option? Round answer to nearest dollar
A lottery offers you a choice of $1,000,000 per year for 30 years or a lump-sum payment. What lump-sum payment (rounded to the nearest dollar) would equal the annual payments if the current interest rate is 1.9% compounded annually? (a) State the type. A. amortization B. present value of an ordinary annuity C. future value of an ordinary annuity D.sinking fund E. none of these (b) Answer the question. (Round your answer to the nearest dollar.)
Assume you win a lottery, and you are offered the following stream of payments by the lottery commission: $25,000 today, $32,000 one year from now, another $32,000 two years from now, and a final payment of $55,000 three years from now. You accept the offer. If you invest all of these proceeds at 6% compounded annually and extract nothing from the investment, how much will you have at the end of the fourth year?