CORPORATE FINANCE >C<
11th Edition
ISBN: 9781308875637
Author: Ross
Publisher: MCG/CREATE
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 4, Problem 54QP
a.
Summary Introduction
To discuss: The option that should be selected after comparing the present values.
It refers to the ability of the person to buy something. Purchasing power decreases with increase in inflation and increases with decrease in inflation. Because of purchasing power, individual adjust future inflow of cash according to the interest rate to get the present value of the money.
b.
Summary Introduction
To discuss: The option that should be selected after comparing the present values.
Purchasing Power:
It refers to the ability of the person to buy something. Purchasing power decreases with increase in inflation and increases with decrease in inflation. Because of purchasing power, individual adjust future inflow of cash according to the interest rate to get the present value of the money.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Assume you won the state lottery and you are entitled to $5,000,000. If you choose not to take the
money right away but wish to be paid weekly, you estimate that you will want to receive this cash flow
over the next 10 years. How much will your weekly payment be at an interest rate of 5% ?
You have just won the lottery and will receive a lump sum payment of $23.49 million after taxes. Instead of immediately spending your money, you plan
to deposit all of the money into an account that will earn 5.53 percent. If you make equal annual withdrawals for the next 35 years, how much can you
withdraw each year starting exactly one year from now?
Multiple Choice
$1.582.896.36
$1,451,563.71
$1,531,835.19
5671142.86
$1,608.426.94
You have just won the Multi-State Lottery. You have the option of receiving a check for $35,000,000 every year at the end of the next 22 years. The lottery commission also allows you the option of receiving a one-time payment of $387,143,417 when you turn in the winning ticket. What is the approximate interest rate that the lottery commission is using to determine the one-time payment? (Use spreadsheet software or a financial calculator to calculate your answer. Do not round any intermediary calculations, and round your final answer to the nearest percent, X%.)
Group of answer choices
7%
6%
8%
5%
Chapter 4 Solutions
CORPORATE FINANCE >C<
Ch. 4 - Prob. 1CQCh. 4 - Prob. 2CQCh. 4 - Prob. 3CQCh. 4 - Prob. 4CQCh. 4 - Time Value On subsidized Stafford loans, a common...Ch. 4 - Prob. 6CQCh. 4 - Prob. 7CQCh. 4 - Prob. 8CQCh. 4 - Prob. 9CQCh. 4 - Prob. 10CQ
Ch. 4 - Simple Interest versus Compound Interest First...Ch. 4 - Prob. 2QPCh. 4 - Prob. 3QPCh. 4 - Prob. 4QPCh. 4 - Prob. 5QPCh. 4 - Prob. 6QPCh. 4 - Calculating Present Values Imprudential, Inc., has...Ch. 4 - Calculating Rates of Return Although appealing to...Ch. 4 - Perpetuities An investor purchasing a British...Ch. 4 - Prob. 10QPCh. 4 - Prob. 11QPCh. 4 - Prob. 12QPCh. 4 - Calculating Annuity Present Value An investment...Ch. 4 - Calculating Perpetuity Values The Perpetual Life...Ch. 4 - Calculating EAR Find the EAR in each of the...Ch. 4 - Calculating APR Find the APR, in each of the...Ch. 4 - Calculating EAR First National Bank charges 10.3...Ch. 4 - Interest Rates Well-known financial writer Andrew...Ch. 4 - Calculating Number of Periods One of your...Ch. 4 - Prob. 20QPCh. 4 - Prob. 21QPCh. 4 - Simple Interest versus Compound Interest First...Ch. 4 - Calculating Annuities You are planning to save for...Ch. 4 - Prob. 24QPCh. 4 - Prob. 25QPCh. 4 - Prob. 26QPCh. 4 - Prob. 27QPCh. 4 - Annuity Present Values What is the present value...Ch. 4 - Annuity Present Values What is the value today of...Ch. 4 - Balloon Payments Audrey Sanborn has just arranged...Ch. 4 - Prob. 31QPCh. 4 - Prob. 32QPCh. 4 - Growing Annuity Southern California Publishing...Ch. 4 - Growing Annuity Your job pays you only once a year...Ch. 4 - Prob. 35QPCh. 4 - Prob. 36QPCh. 4 - Prob. 37QPCh. 4 - Calculating Loan Payments You need a 30-year,...Ch. 4 - Prob. 39QPCh. 4 - Calculating Present Values You just won the TVM...Ch. 4 - Prob. 41QPCh. 4 - Prob. 42QPCh. 4 - Prob. 43QPCh. 4 - Prob. 44QPCh. 4 - Prob. 45QPCh. 4 - Prob. 46QPCh. 4 - Prob. 47QPCh. 4 - Prob. 48QPCh. 4 - Prob. 49QPCh. 4 - Prob. 50QPCh. 4 - Calculating Annuities Due You want to lease a set...Ch. 4 - Prob. 52QPCh. 4 - Prob. 53QPCh. 4 - Prob. 54QPCh. 4 - Prob. 55QPCh. 4 - Prob. 56QPCh. 4 - Prob. 57QPCh. 4 - Prob. 58QPCh. 4 - Prob. 59QPCh. 4 - Prob. 60QPCh. 4 - Prob. 61QPCh. 4 - Prob. 62QPCh. 4 - Prob. 63QPCh. 4 - Prob. 64QPCh. 4 - Calculating the Number of Periods Your Christmas...Ch. 4 - Prob. 66QPCh. 4 - Prob. 67QPCh. 4 - Prob. 68QPCh. 4 - Prob. 69QPCh. 4 - Perpetual Cash Flows What is the value of an...Ch. 4 - Prob. 71QPCh. 4 - Prob. 72QPCh. 4 - Prob. 73QPCh. 4 - Prob. 74QPCh. 4 - Rule or 69.3 A corollary to the Rule of 72 is the...Ch. 4 - Prob. 1MCCh. 4 - Prob. 2MCCh. 4 - Prob. 3MCCh. 4 - Prob. 4MCCh. 4 - Prob. 5MCCh. 4 - Prob. 6MC
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- You just won a special lottery which will entitle you to an annual payment $45000 for 10 years, but the first payment won't start until 5 years later (i.e. 1st payment at the end of the 5th year). If you plan to immediately deposit every payment into an annuity product that gives you 5.62% APR with annual compounding, how much is your account balance at the end of the lottery payment plan (i.e. when you receive the last payment)?arrow_forwardIt is estimated that you will pay about $80,000 into the Social Security system (FICA) over your 40-year work span. For simplicity, assume this is an annuity of $2,000 per year, starting with your 26th birthday and continuing through your 65th birthday. Solve, a. What is the future equivalent worth of your Social Security savings when you retire at age 65 if the government’s interest rate is 6% per year? b. What annual withdrawal can you make if you expect to live 20 years in retirement? Let i= 6% per year.arrow_forwardYou like to buy lottery tickets every week. The lottery pays an insurancecompany that pays the winner an annuity. If you win a $60,000,000 lotteryand elect to take an annuity, you get $3,000,000 per year at the beginningof each year for the next 20 years.a. How much must the state pay the insurance company if money can earn3 percent?b. How much interest is earned on this lump-sum payment over the 20 years?c. If you take the cash rather than the annuity, the state pays you $30,000,000in one lump sum today. You must pay 40 percent of this in taxes. If you arecurrently working and invest this money at 6 percent, how much moneywill you have in a mutual fund at the end of 20 years?d. Are you better off with the annuity, or should you take the cash? Explain.arrow_forward
- Suppose you just won the state lottery, and you have a choice between receiving $3,600,000 today or a 20-year annuity of $250,000, with the first payment coming one year from today. What rate of return is built into the annuity? Disregard taxes. Select the correct answer. a. 1.56% b. 2.46% c. 3.36% d. 4.26% e. 5.16%arrow_forwardSuppose you just won the state lottery, and you have a choice between receiving $2,679,000 today or a 20-year annuity of $261,000, with the first payment coming one year from today. What rate of return is built into the annuity? Disregard taxes. Group of answer choices 8.96% 7.41% 7.82% 8.55% 7.04%arrow_forwardSuppose you just won the state lottery, and you have a choice between receiving $2,825,000 today or a 20-year annuity of $240,000, with the first payment coming one year from today. What rate of return is built into the annuity? Disregard taxes.arrow_forward
- Suppose you borrow money from your parents for college tuition on January 1, 2019. Your parents require four annual payments of $30,000 each, with the first payment due on January 1, 2023. They are charging you 5% annual interest. What is the cost of college tuition? (Use spreadsheet software or a financial calculator to calculate your answer. Round intermediary calculations to two decimal places and round your final answer to the nearest dollar.) Question content area bottom Part 1 A$91,894 B.$111,697 C.$120,000 D.$88,475arrow_forwardSuppose you just won the state lottery, and you have two options: (1) receiving $2,550,000 now or (2) receiving a 20-year annuity with $250,000 payment at the end of each year. What rate of return is built into the annuity to make you indifferent with these two options? A) 7.12% B) 7.87% C) 8.26% D) 7.49% E) 8.67%arrow_forwardYou would like to have enough money saved to receive a $90,000 per year perpetuity after retirement. The annual interest rate is 8 percent. Required: How much would you need to have saved in your retirement fund to achieve this goal? a) Assume that the perpetuity payments start on the day of your retirement. b) Assume that the perpetuity payments start one year from the date of your retirement.arrow_forward
- You have just won the lottery and took a lump sum payout. After talking with a financial adviser you will make an lump sum deposit into an annuity that pays 3.3%, compounded semi-annual. If you will defer payments for 31 years and then receive payments at the end of every six months in the amount of $16,000.00 for 15 years. How much must you put into the annuity today to make this happen?You must deposit $ from your lottery winnings. (Round to 2 decimal places.)arrow_forwardYour dreams of becoming rich have just come true. You have won the State of Tranquility's Lottery. The State offers you two payment plans for the$4,000,000 advertised jackpot. You can take annual payments of $160,000 at the end of the year for the next 25 years or $1,864,573 today. c. At what investment rate will the annuity stream of $160,000 be the same as the lump-sum payment of $1,864,573?arrow_forwardYou choose to invest your $3,435 income tax refund check (rather than spend it) in an account earning 6% compounded annually. How much will the account be worth in 30 years? (Use the Table provided.) (Round your answer to the nearest cent.) Wortharrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Pfin (with Mindtap, 1 Term Printed Access Card) (...FinanceISBN:9780357033609Author:Randall Billingsley, Lawrence J. Gitman, Michael D. JoehnkPublisher:Cengage Learning
Pfin (with Mindtap, 1 Term Printed Access Card) (...
Finance
ISBN:9780357033609
Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:Cengage Learning