Ee 173. 4. You've just won the 5,000,000 Massachusetts state lottery. You must choose one of thefollowing payout alternatives:26125,000 at the end of each year for the next 40 years, or1,950,000 todayBeverly Bank will buy and/or sell annuities and/or upfront amounts of any maturity at anAPR of 6.50%.a. What is the PV of the annuity alternative assuming you sell it to Beverly Bank?b. An acquaintance has won the lottery and wants the annuity payout. You offer to pay her135,000 if she'll assign the lottery to you. If she accepts the offer what is your profit?

We can determine the PV of an annuity using the formula below: PV = PMT1-(1+r)-nr Where PMT = annual…

a. What is the PV of the annuity alternative assuming you sell it to Beverly Bank? b. An acquaintance has won the lottery and wants the annuity payout. You offer to pay her 135,000 if she'll assign the lottery to you. If she accepts the offer what is your profit?

a. What is the PV of the annuity alternative assuming you sell it to Beverly Bank? b. An acquaintance has won the lottery and wants the annuity payout. You offer to pay her 135,000 if she'll assign the lottery to you. If she accepts the offer what is your profit?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question

Ee 173.

4. You've just won the 5,000,000 Massachusetts state lottery. You must choose one of the
following payout alternatives:
26
125,000 at the end of each year for the next 40 years, or
1,950,000 today
Beverly Bank will buy and/or sell annuities and/or upfront amounts of any maturity at an
APR of 6.50%.
a. What is the PV of the annuity alternative assuming you sell it to Beverly Bank?
b. An acquaintance has won the lottery and wants the annuity payout. You offer to pay her
135,000 if she'll assign the lottery to you. If she accepts the offer what is your profit?

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