Which of the assets is worth the most

Assignment Help Financial Management

Reference no: EM131829905

1. Which of the following assets is worth the most? Which is worth the least?

a) a 25 year, $1,500,000 zero-coupon (no interest) bond

b) a 40 year annuity paying $25,000 per year

c) a new 10 year bond that pays $20,000 per year in interest income plus the return of the principal of $400,000 at maturity

For purposes of this problem, assume that we have determined that an appropriate discount rate to apply for all three instruments is 6%. Assume also that all payments occur at the ends of years involved.

2. Rework problem #1 above, but this time assume a discount rate of 3%. Explain—in plain English, and in language that I can understand—why the numbers (and rankings) changed in the directions they did.

Reference no: EM131829905

Questions Cloud

Use one-period binomial lognormal model : Use a one-period binomial lognormal model, calculate what the euro price in dollars will be in two years if the euro’s price increases.

Review problem on research electronic health records : In the first week of your internship, the CIO approaches your team and asks you to research electronic health records (EHRs).

Explain risk assessment and risk management strategy : Develop a 10 pages comprehensive written risk assessment and risk management strategy for a particular infrastructure system(s).

Continuous uniform distribution on the interval : Suppose that X and Y arc independent random variables; that X has a discrete uniform distribution on the integers 1, 2, 3, 4, 5;

Which of the assets is worth the most : Which of the following assets is worth the most? Which is worth the least? a 40 year annuity paying $25,000 per year

Time until the system fails to operate : Determine the dJ. of the time until the system fails to operate.

Rectangle with vertices at the four points : A rectangle with vertices at the four points (0, 0), (0,3), (1, 3), and (1, 0). (e) A square with vertices at the four points (0, 0), (1, 1), (0, 2), and ( - 1,

What is the relationship between risk and return : What is the relationship between risk and return?

Determine the reliability of the system : Determine the reliability of the system, (a) assuming that the components are connected in series, and (b) assuming that the components are connected

User Account

All Pages