Question

In: Finance

5.21 Kristina just won the lottery, and she must choose among three award options. She can...

5.21 Kristina just won the lottery, and she must choose among three award options. She can elect to receive a lump sum today of $61 million, to receive 10 end-of-year payments of $9.3 million, or to receive 30 end-of-year payments of $5.4 million.

  1. If she thinks she can earn 7% percent annually, which should she choose?
    -Select-She should accept the 30-year payment option as it carries the highest present value.She should accept the lump-sum payment option as it carries the highest present value.She should accept the 10-year payment option as it carries the highest present value.She should accept the lump-sum payment option as it carries the highest future value.Item 1

  2. If she expects to earn 8% annually, which is the best choice?
    -Select-She should accept the lump-sum payment option as it carries the highest present value.She should accept the 30-year payment option as it carries the highest present value.She should accept the 10-year payment option as it carries the highest present value.She should accept the lump-sum payment option as it carries the highest future value.Item 2

  3. If she expects to earn 9% annually, which option would you recommend?
    -Select-She should accept the lump-sum payment option as it carries the highest present value.She should accept the 30-year payment option as it carries the highest present value.She should accept the 10-year payment option as it carries the highest present value.She should accept the 30-year payment option as it carries the highest future value.Item 3

  4. Explain how interest rates influence her choice.
    -Select-The higher the interest rate, the more valuable it is to get money rapidly.The lower the interest rate, the more valuable it is to get money rapidly.The higher the discount rate, the higher the more distant cash flows are valued.Interest rates do not influence the optimal choice in any way.Interest rates and the present value of cash flows are positively related.

Solutions

Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

jeff jeffy answered 3 months ago
Next > < Previous

Related Solutions

5.21 Kristina just won the lottery, and she must choose among three award options. She can...
5.21 Kristina just won the lottery, and she must choose among three award options. She can elect to receive a lump sum today of $61 million, to receive 10 end-of-year payments of $9.3 million, or to receive 30 end-of-year payments of $5.4 million. If she thinks she can earn 7% percent annually, which should she choose? -Select-She should accept the 30-year payment option as it carries the highest present value.She should accept the lump-sum payment option as it carries the...
Kristina just won the lottery, and she must choose among three award options. She can elect...
Kristina just won the lottery, and she must choose among three award options. She can elect to receive a lump sum today of $64 million, to receive 10 end-of-year payments of $9.8 million, or to receive 30 end-of-year payments of $5.6 million. a. If she thinks she can earn 7% percent annually, which should she choose? b. If she expects to earn 8% annually, which is the best choice? c. If she expects to earn 9% annually, which option would...
3. Kelsey just won the lottery, and she must choose among three award options .She can...
3. Kelsey just won the lottery, and she must choose among three award options .She can elect (1) to receive a lump sum today of $62 million, (2) to receive end-of-month payments of $0.8 million for 10 years or (3) to receive end-of month payments of $0.47 million for 30 years. If she can earn 9% annually (i.e., the discount rate is 9% per year), which is the best choice based on the PV of the three award options? a)...
istina just won the lottery, and she must choose among three award options. She can elect...
istina just won the lottery, and she must choose among three award options. She can elect to receive a lump sum today of $64 million, to receive 10 end-of-year payments of $9.9 million, or to receive 30 end-of-year payments of $5.9 million. If she thinks she can earn 7% percent annually, which should she choose? -Select- If she expects to earn 8% annually, which is the best choice? -Select- If she expects to earn 9% annually, which option would you...
Tony just won the actuarial lottery. He is allowed to select one of three payout options...
Tony just won the actuarial lottery. He is allowed to select one of three payout options in order to collect his winnings:(A) $575,000 payable six months from today.(B) $300,000 today plus an additional $300,000 payable two years from today.(C) $20,500 paid at the beginning of each six-month period for 40 years (with the first payment coming six months later).The nominal rate of interest, convertible semiannually, is 8%. Select the option (A, B, or C) that results in the highest present...
2. You just won a Million Dollar lottery and you can choose one of the following...
2. You just won a Million Dollar lottery and you can choose one of the following two options to claim your winning. If you choose Option A, you will receive $40,000 every year for 25 years (40,000 x 25 = $1,000,000 hence the name), with the first payment to occur one year from today. But you may also choose Option B, in which case you will receive a single payment of $600,000 today. The applicable tax rate for the annual...
Alysha has just won a lottery. She will receive a payment of $8,000 at the end...
Alysha has just won a lottery. She will receive a payment of $8,000 at the end of each year for 9 years. As an alternative, she can choose an immediate payment of $55,000. A. Which alternative should she pick if the interest rate is 4 percent: make a payment at the end of each year or an immediate payment? (choose) B. What would the interest rate have to be for Alysha to be indifferent about the two alternatives? (Round answer...
Alysha has just won a lottery. She will receive a payment of$8,000 at the end...
Alysha has just won a lottery. She will receive a payment of $8,000 at the end of each year for 9 years. As an alternative, she can choose an immediate payment of $55,000.A. Which alternative should she pick if the interest rate is 4 percent: make a payment at the end of each year or an immediate payment? (choose)B. What would the interest rate have to be for Alysha to be indifferent about the two alternatives? (Round answer to 4...
You just won a lottery. There are two payout options for you: Option 1: a lump...
You just won a lottery. There are two payout options for you: Option 1: a lump sum payment of $500,000 today; Option2: a payment of $20,000per year for the next thirty years(starting from next year until the end of the 30th year) If the required return is 5%, then what's the NPV of choosing the first payout option for winning this lottery? Hint: Please regard the(present) value of the second option as opportunity costs in this calculation.
You have just won the Kryshak lottery and you are given the following options to receive...
You have just won the Kryshak lottery and you are given the following options to receive your winnings: 1. A lifetime annuity of $480,000 per year, with the first payment occurring one year from today. Your life expectancy is 40 years. (You will receive 40 payments) 2. A payment of $461,050 per year for 30 years (30 payments) with the first payment made immediately. 3. $7,945,000 five years from now. If your opportunity cost is 9%, which should you pick...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT