1. The winner of a state lottery will receive $5,000 per week for the rest of her life. If the...

Question

1. The winner of a state lottery will receive $5,000 per week for the rest of her life. If the winner’s interest rate is 6.5% per year compounded weekly, what is the present worth of this jackpot?

2. What is the maximum price you will pay for a bond with a face value of $1,000 and a coupon rate of 14%, paid annually, if you want a yield to maturity of 10%? Assume that the bond will mature in 10 years and the first payment will be received in one year.

David · Accepted Answer

1. The winner of a state lottery will receive $5,000 per week for the rest of her life. If the winner’s 
interest rate is 6.5% per year compounded weekly, what is the present worth of this jackpot? 
Answer- 
Present worth( PW) is given by  
……………………( 6.5/52=0.125)
Thus,

1. The winner of a state lottery will receive $5,000 per week for the rest of her life. If the winner’s interest rate is 6.5% per year compounded weekly, what is the present worth of this jackpot? 2....

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