Question

- 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?
- 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.

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