What is the present value of the annual cash payment option

Assignment Help Financial Management

Reference no: EM131337981

A life insurance company offers the option of receiving $500,000 as a lump-sum, or $60,000 per year over 10 years.

a) If market interest rates are 5%, what is the present value of the annual cash payment option?

b) Suppose market interest rates are 2.5%, what is the present value of the annual cash payment option?

c) What is the implied yield to maturity if these two options are deemed equivalent?

Reference no: EM131337981

Questions Cloud

What was the dividend yield : Suppose a stock had an initial price of $113 per share, paid a dividend of $2.90 per share during the year, and had an ending share price of $141. What was the dividend yield?

Determine the break even quantity for manufacturer : A manufacturing unit has fixed costs of $150,000 per month and variable costs of $4 per unit. Determine the break even quantity if the selling price is $9. Determine the break even quantity for a manufacturer with $250,000 monthly fixed costs and tha..

The total annual coupon income you will receive on year : You buy a TIPS at issue at par for $1000. the bond has a 3% coupon. Inflation turns out to be 2%, 3%, and 4% over the next 3 years. The total annual coupon income you will receive on year 3 is: (please include HP12C key steps )

Using for your flagship product battlin bobby : You are considering adding a new software title to those published by your highly successful software company. If you add the new product, it will use capacity on your disk duplicating machines that you had planned on using for your flagship product,..

What is the present value of the annual cash payment option : A life insurance company offers the option of receiving $500,000 as a lump-sum, or $60,000 per year over 10 years. If market interest rates are 5%, what is the present value of the annual cash payment option? Suppose market interest rates are 2.5%, w..

What is olympic after-tax cost of debt : Olympic Sports has two issues of debt outstanding. One is a 7% coupon bond with a face value of $26 million, a maturity of 15 years, and a yield to maturity of 8%. What is the before-tax cost of debt for Olympic? What is Olympic's after-tax cost of ..

What is the firm net operating working capital : Please work out The assets of Dallas & Associates consist entirely of current assets and net plant and equipment. The firm has total assets of $2.9 million and net plant and equipment equals $2.4 million. What is the firm's net working capital? $ Wha..

Discuss the pros and cons-advantages and disadvantages : Discuss the pros and cons, advantages and disadvantages, and risk factors of financing your business through: Identify ideas you have for possible sources of funding, both short- and long-term, that could be used in your business plan.

What if the fed raises interest rates : Han can purchase a new tractor for $100,000. It will cost $10,000 per year to operate and after 3 years she can sell it for $50,000. What if the FED raises interest rates so that Han must pay 10% on her bank loan?

User Account

All Pages