a. You win a lottery and there are no more winners. The announced prize is $30 million, to be paid in 30 equal installments of $1 million. The first payment is made right now. Each subsequent payment is made at the end of each of the next 29 consecutive years. If you wish, you can accept a balloon payment now. Suppose the lottery commission uses a discount rate of 6%. What is the value of the lump sum payment?

b. A bond is in a risk class that pays 5% per year. The bond pays annual interest of $400 (the first interest payment is one year from now) and matures in 10 years at a value of $10,000. What is the price of the bond?

Answer rating: 100% (QA)

a To find the value of the lump sum payment we need to calculate the present value of the 30 equal i... View the full answer