Assume that you have an asset paying $1000 next year and $1000 in two years, and...

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Assume that you have an asset paying $1000 next year and $1000 in two years, and nothing more after that. A friend offers you $1750 for this asset. If the interest rate is 7%, should you sell? Explain your reasoning. You have a three-year bond with a face value of $100, paying interest of $5 per year. If the market rate of interest is 4%, what is the price of your bond? Assume the Powerball lottery has a minimum prize of $10 million paid equally over 30 years, or $5.8 million paid immediately. At a 6% rate of interest, should you take the annuity ($333,333 annually) or the cash ($5.8 million today)? You can use the present value formula in Excel for this problem. In a cell, enter =PV(i, n, $Amount,, 1) where =PV instructs Excel to compute a present value i is the rate of interest (as a decimal) n is the number of years $Amount is the amount paid in each period Note the space between $Amount, ,1. This is not a mistake. This blank instructs Excel that there is no residual future value. The final 1 in the formula instructs Excel that the first $333,333 installment is paid immediately, and the other 29 installments are to be discounted over the next 29 years. (Note: For 4, the answer will be a negative number. Just ignore the red color and use the positive value of the answer obtained from Excel.) Which option is better (assume that you pay no taxes)? Explain.. Assume that you have an asset paying $1000 next year and $1000 in two years, and nothing more after that. A friend offers you $1750 for this asset. If the interest rate is 7%, should you sell? Explain your reasoning. You have a three-year bond with a face value of $100, paying interest of $5 per year. If the market rate of interest is 4%, what is the price of your bond? Assume the Powerball lottery has a minimum prize of $10 million paid equally over 30 years, or $5.8 million paid immediately. At a 6% rate of interest, should you take the annuity ($333,333 annually) or the cash ($5.8 million today)? You can use the present value formula in Excel for this problem. In a cell, enter =PV(i, n, $Amount,, 1) where =PV instructs Excel to compute a present value i is the rate of interest (as a decimal) n is the number of years $Amount is the amount paid in each period Note the space between $Amount, ,1. This is not a mistake. This blank instructs Excel that there is no residual future value. The final 1 in the formula instructs Excel that the first $333,333 installment is paid immediately, and the other 29 installments are to be discounted over the next 29 years. (Note: For 4, the answer will be a negative number. Just ignore the red color and use the positive value of the answer obtained from Excel.) Which option is better (assume that you pay no taxes)? Explain..

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Solution 1 Fair Present Value of Asset 1000 1 006 1000 1 006 2 1000 09434 1000 08899 183339 A Frien... View the full answer