1. Jim Craves has won a lottery of $50,000 today. The lottery company offers him three...
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1. Jim Craves has won a lottery of $50,000 today. The lottery company offers him three alternatives payment method in exchange of the payment today as shown in the table below. The current market interest rate is 10 percent. a. a. b. b. C. Alternatives A ABU Single amount $70,500 at end of year 3 $120,000 at end of year 9 $330,000 at end of year 20 C Find the value of each alternative. Are the alternatives acceptable, that is worth $50,000 today? Which alternative will you accept? State your reason. (6 marks) (2 marks) 2. Two Treasury bonds have a face value of $100,000 and pay coupons at the rate of 10 percent semi-annually. Bond P has four years to maturity and bond Q has eight years to maturity. (2 marks) If the current interest rate is 7.5 percent p.a., calculate the prices of bond P and bond Q. (8 marks) Based on the answer in (a), conclude on the relationship between bond P and bond Q. (2 marks) 1. Jim Craves has won a lottery of $50,000 today. The lottery company offers him three alternatives payment method in exchange of the payment today as shown in the table below. The current market interest rate is 10 percent. a. a. b. b. C. Alternatives A ABU Single amount $70,500 at end of year 3 $120,000 at end of year 9 $330,000 at end of year 20 C Find the value of each alternative. Are the alternatives acceptable, that is worth $50,000 today? Which alternative will you accept? State your reason. (6 marks) (2 marks) 2. Two Treasury bonds have a face value of $100,000 and pay coupons at the rate of 10 percent semi-annually. Bond P has four years to maturity and bond Q has eight years to maturity. (2 marks) If the current interest rate is 7.5 percent p.a., calculate the prices of bond P and bond Q. (8 marks) Based on the answer in (a), conclude on the relationship between bond P and bond Q. (2 marks)
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Answer Question 1 There are three alternatives under which option the present value is more that opt... View the full answer
Related Book For
Engineering Economy
ISBN: 978-0132554909
15th edition
Authors: William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
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