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Directions: Answer the following questions in a separate document. Explain how you reached the answer or show your work if a mathematical calculation is needed, or both. Submit your assignment using t
Directions: Answer the following questions in a separate document. Explain how you reached the answer or show your work if a mathematical calculation is needed, or both. Submit your assignment using the assignment link above.
- You have just won the Strayer Lottery jackpot of $11,000,000. You will be paid in 26 equal annual installments beginning immediately. If you had the money now, you could invest it in an account with a quoted annual interest rate of 9% with monthly compounding of interest. What is the present value of the payments you will receive?
- In your own words and using various bond websites, locate one of each of the following bond ratings: AAA, BBB, CCC, and D. Describe the differences between the bond ratings. Identify the strengths and weaknesses of each rating.
Grading for this assignment will be based on answer quality, logic/organization of the paper, and language and writing skills, using the following rubric.
W4 HW# 2 HINTS
First you calculate the annual payment = 11000000/26 = ……….????????
second you have the nominal annual interest rate = 9% = 0.09 but it is compounded monthly,
so you should calculate the Effective annual interest rate (EAR)
12
EAR = ( 1 + 0.09/12) - 1 = ………..???
Using Excel : EAR --------à =(1+(nominal i/12))^12-1=…….
number of period or years = 26
payments are annual and equal, so you have a series of equal annual payments, which is Annuity
and because the payments are paid at the beginning of the year then the payments are "Annuity Due"
Future value = FV = 0
Present value = PV = ?????????
Go to EXCEL, type: =PV( )
It will ask you to provide information about =PV( rate,nper,pmt,fv,type)
rate = the EAR which you calculated
nper= 26
pmt= 11000000/26=
fv=0
Type= 1
Click enter you get the present value.
