At approximately what interest rate would you be indifferent

Assignment Help Finance Basics

Reference no: EM131939883

Question: Assume that you just won the state lottery. Your prize can be taken either in the form of $40,000 at the end of each of the next twinty-five years (i.e., $1 million over twenty-five years) or as a lump sum of $500,000 paid immediately.

a. If you expect to be able to earn 5% annually on your investments over the next twently-five years, which alternative should you take? Why?

b. Would your decision in part (a) be altered if you could earn 7% rather than 5% on your investments over the next twenty-five years? Why?

c. At approximately what interest rate would you be indifferent when choosing between the two plans?

Reference no: EM131939883

Questions Cloud

What is the investor rate of return : If the stock is sold at the end of the year at $21 per share, what is the investor's rate of return?

Find solution of given problem using the gordon model : Assuming the investor's required rate of return is 9%, if a share of this common stock has just paid a dividend of $1.70 (annual).

Expected return and return standard deviation of portfolio : What is the expected return and return standard deviation of your portfolio?

About the IPO Under pricing : The Woods Co. and the Mickelson Co. have both announced IPOs at $40 per share. What profit do you actually expect? What principle have you illustrated?

At approximately what interest rate would you be indifferent : Assume that you just won the state lottery. Your prize can be taken either in the form of $40,000 at the end of each of the next twinty-five years.

Firm P-E ratio remains at its current level : Valuation using P/E ratio Nevada inc. recently reported net income of $8 million. Assume that firm's P/E ratio remains at its current level,

What should be the price of a one-year par-value bond : Assuming the market is arbitrage-free, if a three-month zero-coupon bond yields 2.25%, a six-month zero-coupon bond yields 2.45%, a nine-month zero-coupon bond.

What is primary reason for treating distributions : What is the primary reason for treating distributions differently depending on if the S corporation has earnings and profits or not?

At what buy-back price would shareholders be indifferent : Assume that WyoOne Corp. recently moved to its optimal capital structure by issuing $4,000mn additional debt and this move resulted in an increase of $2,500mn.

User Account

All Pages