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Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Suppose you just won the state lottery, and you have two options: (1) receiving $2,550,000 now or (2) receiving a 20-year
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Mr. Z is about to retire, and he wants to buy an annuity that will provide him with $57,000 of income per year for 20 years, with the first paying coming immediately and future payments occurring at the BEGINNING of the respective years. The interest rate on this annuity is 8.50%. How much would it cost him to buy the annuity today? Group of answer choices $539,410.19 $538,439.25 $585,260.05 $655,491.26 $561,849.65arrow_forwardSuppose you just won the state lottery, and you have a choice between receiving $2,515,000 today or a 20-year annuity of $220,000, with the first payment coming one year from today. What rate of return is built into the annuity? Disregard taxes. O a. 6.88% O b. 12.96% O c. 6.04% O d. 5.69% O e. 8.75%arrow_forwardYou have a chance to buy an annuity that pays $5,700 at the end of each year for 3 years. You could earn 5.5% on your money in other investments with equal risk. What is the most you should Dav for the annuity? a $15,378.22 b. $16,454.70 c. $11,687.45 d. $14,763.09 e. $13.532.83arrow_forward
- Assume that you own an annuity that will pay you $15,000 per year for 12 years, with the first payment being made today. You need money today to start a new business, and your uncle offers to give you $160,000 for the annuity. If you sell it, what rate of return would your uncle earn on his investment? O 2.28% O 2.20% O 2.22% 2.33% 2.59%arrow_forward23. Suppose you just won the state lottery, and you have a choice between receiving $2,550,000 today or a 20-year annuity of $250,000, with the first payment coming one year from today. What rate of return is built into the annuity? Disregard taxes. z 17.22arrow_forward6. You are contemplating the purchase of a twenty-four year (variable) annuity that promises cash flows in the following pattern, repeating every four years: 1e 2e 3e 4e 21e 24 22 23 $1,600- $1,500- $1,400 $1,300- $1,600 $1,500 $1,400 $1,300 Suppose you don't like the fluctuations in the amount of your annual benefits.e a. What annual rate of return would you use to convert these (end-of-year) cash flows to equal annual (end-of-year) amounts if you required an APR of 14.4%, compounded monthly?e b. Without prejudice to your answer in part a, suppose that your required annual rate of return is 15%, what equal annual (beginning-of-year) payments over the twenty-four year period would be equivalent to the cash flow stream depicted above?arrow_forward
- You just won a special lottery which will entitle you to an annual payment $45000 for 10 years, but the first payment won't start until 5 years later (i.e. 1st payment at the end of the 5th year). If you plan to immediately deposit every payment into an annuity product that gives you 5.62% APR with annual compounding, how much is your account balance at the end of the lottery payment plan (i.e. when you receive the last payment)?arrow_forwardIn this question, consider that you are 60 years old and considering retirement. An insurance company offers to sell you the following Annuity in exchange for a portion of your IRA: • The Annuity commits to paying you 2,000 per month for the next 20 years, with the first payment to be made beginning one month from today. • Your price of the Annuity is $250,000 paid by you today from your IRA. The insurance company is rated AAA, but the investment is not FDIC insured like bank deposits. What is the expected annual rate of return on this investment? What is the Yield-on this investment? That is what is the annual expected rate of return? From an investment point of view, do you consider this a good investment today? Discuss why, or why not.arrow_forwardSuppose you just won the state lottery, and you have a choice between receiving $2,625,000 today or a 20-year annuity of $270,000, with the first payment coming one year from today. What rate of return is built into the annuity? Disregard taxes. a. 7.83% b. 10.29% c. 8.13% d. 12.04% e. 9.38%arrow_forward
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