Effective annual discount rate

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1. You just won the lottery. You and your heirs will receive $40,000 per year forever, with the first payment received immediately. What is the present value at a 10% effective annual discount rate?

2. Leo Inc. has a bond with a 6 percent annual coupon (coupon is paid in semiannual installments) and a yield to maturity of 5 percent. If the bond matures in 20 years, what is the bond worth?

3. Zach wants to have $2 million when he retires in 25 years. How much should he save at the end of each month if he can earn 12% annually with monthly compounding?

Reference no: EM132068602

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