You have just won the lottery. You will receive $4,000,000 today, and then receive 40 payments of $1,000,000. These payments will start one year from now and will be paid every six months. A representative from Greenleaf Investments has offered to purchase all the payments from you for $20.4 million. If the appropriate interest rate is an 8 percent APR compounded daily, should you take the offer? Assume there are 365 days per year.
Answer to relevant QuestionsAs discussed in the text, an annuity due is identical to an ordinary annuity except that the periodic payments occur at the beginning of each period and not at the end of the period. Show that the relationship between the ...Locate the Treasury bond in Figure 5.4 maturing in February 2039. Is this a premium or a discount bond? What is its current yield? What is its yield to maturity? What is the bid-ask spread? Hollin Corporation has bonds on the market with 13.5 years to maturity, a YTM of 7.3 percent, and a current price of $1,080. The bonds make semiannual payments. What must the coupon rate be on these bonds? Johnson, Inc., is expected to pay equal dividends at the end of each of the next two years. Thereafter, the dividend will grow at a constant annual rate of 4.5 percent, forever. The current stock price is $43. What is next ...One potential criticism of the internal rate of return technique is that there is an implicit assumption that this technique assumes the intermediate cash flows of the project are reinvested at the internal rate of return. ...
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