Question

Why would you prefer to keep the amount you could spend on the lottery rather than...

Why would you prefer to keep the amount you could spend on the lottery rather than possibly doubt the amount through the draw? Topic: Time Value of Money: Valuing Cash Flow Streams Book: Fundamentals of Corporate Finance (3rd ed)

Homework Answers

Answer #1

Amount through the draw is uncertain. However, keeping an amount with one self and investing in risk free rate is a secured investment.

Suppose a person has $100.

If buy a lottery where probability to win is 5% and if he win get %1000, then his expected return will be 1000*5% + 0*95% = 50

If he invest in risk free rate of 5%, then his expected return for an year will be 100*(1+5%)= %105

Clearly, the risk is very less in keeping the money and investing.

Since money has got time value, investing is the best option. This will reduce the chances of reducing purchasing power.

If you have any doubt, ask me in the comment section please.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Assume that you are nearing graduation and have applied for a job with a local bank....
Assume that you are nearing graduation and have applied for a job with a local bank. As part of the bank’s evaluation process, you have been asked to take an examination that covers several financial analysis techniques. The first section of the test addresses discounted cash flow analysis. See how you would do by answering the following questions. a. Draw time lines for (1) a $100 lump sum cash flow at the end of Year 2, (2) an ordinary annuity...
SHOW CALCULATION AND EXPLANATION, PLEASE! 1- For a given amount, the lower the discount rate, the...
SHOW CALCULATION AND EXPLANATION, PLEASE! 1- For a given amount, the lower the discount rate, the less the present value. A) True B) False 2- What is the NPV of a project that costs $100,000 and returns $45,000 annually for three years if the cost of capital is 14%? A) $3,397.57 B) $4,473.44 C) $16,100.00 D) $35,000.00 3- The decision rule for net present value is to: A) Accept all projects with cash inflows exceeding initial cost. B) Reject all...
****FOR THIS HOMEWORK ASSIGNMENT, YOU MUST SHOW ALL WORK (CALCUATIONS) AND DRAW TIME LINES. 1) Jane...
****FOR THIS HOMEWORK ASSIGNMENT, YOU MUST SHOW ALL WORK (CALCUATIONS) AND DRAW TIME LINES. 1) Jane is 25 years old and was able to save $25,000.    After doing some research, she identifies a stock called HPG Industries that has a dividend yield of 7% that has been consistent for the past 10 years. Based on this information, she decides to invest in this stock. Considering that HPG Industries pays the dividend consistently, how many years will it take for Jane...
Baldwin Corporation is a public corporation listed on New York Stock Exchange (NYSE) market. The company...
Baldwin Corporation is a public corporation listed on New York Stock Exchange (NYSE) market. The company researches, develops, manufactures, and sells various products in the health care industry worldwide. Baldwin Inc. operates in three main segments: Consumer, Pharmaceutical, and Medical Devices segments. The primary corporate objective of the company is to maximize the value of the owners’ equity by increasing the price of its shares in the stock market. Unfortunately, the company’s stock price has been declining over the past...
China Moves to Tighten the Money Supply By DAVID BARBOZA – January 6, 2007 China’s central...
China Moves to Tighten the Money Supply By DAVID BARBOZA – January 6, 2007 China’s central bank said late Friday that it had raised the reserve requirement ratio for banks, the fourth increase in six months, to further tighten the nation’s money supply. The modest move, which takes effect this month, increases the reserve ratio by half a percentage point, to 9.5 percent. Analysts said it was the government’s latest warning that too much money in the financial system could...
Question: What is the amount of cash received from the sale of equipment if Horizon Insurance...
Question: What is the amount of cash received from the sale of equipment if Horizon Insurance elects to outsource publishing to G-Art? Use the following case to help determine the answer: Horizon Insurance (HI) was a full-service regional insurance agency that has done all the printing and publishing of its own promotional brochures, newsletters, informational pamphlets, and required regulatory reports. Linda Wolfe, the business manager of the agency, had for some time thought that the firm might save money and...
What role could the governance of ethics have played if it had been in existence in...
What role could the governance of ethics have played if it had been in existence in the organization? Assess the leadership of Enron from an ethical perspective. THE FALL OF ENRON: A STAKEHOLDER FAILURE Once upon a time, there was a gleaming headquarters office tower in Houston, with a giant tilted "£"' in front, slowly revolving in the Texas sun. The Enron Corporation, which once ranked among the top Fortune 500 companies, collapsed in 2001 under a mountain of debt...
1-How important do you believe it is to be task-oriented and relationship-orientated? How would you describe...
1-How important do you believe it is to be task-oriented and relationship-orientated? How would you describe Musk? 2-Why do you think Musk is successful in overcoming obstacles and handling conflict? How do you overcome obstacles in influencing individuals in your life? 3-Besides the personality traits given in chapter 2, what other traits attribute to a great leader? Recognizing Your Traits The definition of intelligence is the ability to acquire and apply knowledge and skills. Elon Musk knew little about rockets...
Answer 4 questions you feel confidently about Elizabeth has developed a promotional campaign for a client...
Answer 4 questions you feel confidently about Elizabeth has developed a promotional campaign for a client that promises a hefty return for her owned cash-strapped business. While the campaign does not violate any laws, it might be considered manipulative and misleading, especially when targeted toward senior citizens. If Elizabeth were to consult the AMA Code of Ethics she’d discover: - there is a high value placed on creative approaches for clients which can outweigh other concerns if the client or...
Answer 4 questions you feel confidently about Elizabeth has developed a promotional campaign for a client...
Answer 4 questions you feel confidently about Elizabeth has developed a promotional campaign for a client that promises a hefty return for her owned cash-strapped business. While the campaign does not violate any laws, it might be considered manipulative and misleading, especially when targeted toward senior citizens. If Elizabeth were to consult the AMA Code of Ethics she’d discover: - there is a high value placed on creative approaches for clients which can outweigh other concerns if the client or...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT