Assignment 4: Backdating Annuities, Bonds, and the JOBS Act
- A $1,000,000 lottery prize pays $50,000 per year for the next 20 years. If the current rate of return is 4.5%, what is the present value of this prize?
- An insurance policy offers you the option of being paid $750 per month for 20 years or a lump sum of $50,000. Which has the greater value if the current rate of return is 4.5% compounded monthly and you expect to live for 20 years?
- Use your own words to describe the following attributes of a bond investment:
- its par value
- its market value
- its coupon rate
- its yield
- Families save money, and in a modern economy those savings are recycled and become business investments. If there is a federal budget deficit, there is drainage on savings to pay for the national debt. Therefore, business investments suffer. Discuss how the JOBS Act helps the U.S. economy. Don’t stop at job creation.
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Assignment 4
Question 1
- A $1,000,000 lottery prize pays $50,000 per year for the next 20 years. If the current rate of return is 4.5%, what is the present value of this prize?
$50,000 per year for the next 2o years
Current return = 4.5%
What is the present value of the prize?
| Where: |
| P = the present value |
| PMT = the amount of each payment |
| r = interest rate |
| n = the number of periods |
| PV = 50,000 * ((1-(1/(1+0.045)^ 20)) / 0.045) |
| PV = 650,396.82 |
(583 words)