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The state lottery claims that its grand prize is $1 million. The lucky winner will receive $50,000 upon presentation of the winning ticket plus $50,000 at the end of each year for the next 19 years.
a-Why isn't this really a million-dollar prize?
b-What would it actually be worth in dollars to you?
c-What would the twenty yearly payments need to be for the present value of the lottery to be $1 million?
The first step is to determine what type of an annuity the lottery represents.
A 7.50 percent coupon bond with 13 years left to maturity is priced to offer a 8.2 percent yield to maturity. You believe that in one year, the yield to maturity will be 7.8 percent. What is the change in price the bond will experience in dollars?
The option payoff at expiration, to be paid later, is closest to:
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