Question

1. What if you have just won the Strayer Lottery jackpot of $11,000,000. You will be paid in 26 equal annual installments beginning immediately. If you had the money now, you could invest it in an account with a quoted annual interest rate of 9% with monthly compounding of interest. What is the present value of the payments you will receive?
2. In your own words and using various bond websites, locate one of each of the following bond ratings: AAA, BBB, CCC, and D. Describe the differences between the bond ratings. Identify the strengths and weaknesses of each rating.

Answer 1

EAR = (1+r)^n -1

= ( 1 + 0.0075 )^12 - 1

= ( 1.0075^12) - 1

= 1.0938 - 1

= 0.0938 i.e 9.38%

Cash Flow = $ 11000000 / 26

Particulars	Amount
Cash Flow	$      4,23,076.92
Int Rate	9.380%
Periods	26

PV of Annuity Due = [ Cash Flow + Cash Flow * [ 1 - [(1+r)^-(n-1)]] /r ]

= $423076.92 + $423076.92 * [ 1 - [(1+0.0938)^-25]] /0.0938

= $423076.92 + $423076.92 * [ 1 - [(1.0938)^-25]] /0.0938

= $423076.92 + $423076.92 * [ 1 - [0.1063]] /0.0938

= $423076.92 + $423076.92 * [0.8937]] /0.0938

= $423076.92 + $4030937.11

= $4454014.03

Pls do rate, if the answer is correct and comment, if any further assistance is required.