Question

In: Finance

32. You just won a contest! You will receive $50,000 a year for 30 years, starting...

32.

You just won a contest! You will receive $50,000 a year for 30 years, starting today. If you can earn 10 percent on your investments, what are your winnings worth today?

A.	$150,000.00
B.	$333,333.33
C.	$436,510.50
D.	$450,000.00
E.	$518,480.30

33.

A local magazine is offering a $10,000 grand prize to one lucky winner. The prize will be paid in five annual payments of $2,000 each, starting one year after the drawing. How much would this prize be worth to you today if you can earn 8 percent on your money?

A.

$5,550.50

B.

$5,925.24

C.

$6,050.82

D.

$7,985.42

E.

$8,624.25

Expert Solution

32.Information provided:

Annual payment= $50,000

Time= 30 years

Yield to maturity= 10%

The question is solved by calculating the present value of annuity due. Annuity due refers to annuity that occurs at the beginning of a period.

This can also be solved using a financial calculator by inputting the below into the calculator:

The financial calculator is set in the end mode. Annuity due is calculated by setting the calculator to the beginning mode (BGN). To do this, press 2^ndBGN 2^ndSET on the Texas BA II Plus calculator.

Enter the below in a financial calculator to compute the present value of an annuity due:

PMT= 50,000

N= 30

I/Y= 10

Press the CPT key and PV to compute the present value of an annuity due.

The value obtained is 518,480.30.

Therefore, the winnings are worth $518,480.30 today.

Hence, the answer is option e.

33.Information provided:

Annual payment= $2,000

Time= 5 years

Yield to maturity= 8%

The question is solved by calculating the present value of annuity due.

Enter the below in a financial calculator to compute the present value:

PMT= 2,000

I/Y= 8

N= 5

Press the CPT key and PV to compute the present value.

The value obtained is 7,985.42.

Therefore, the prize is worth $7,985.42 today.

Hence, the answer is option d.

The value obtained is

Therefore, the price of the bond is $931.17.

jeff jeffy answered 1 year ago

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