Jonas Won a Lottery That Will Pay Him £125,000 at the End

question 25

Multiple Choice

Jonas won a lottery that will pay him £125,000 at the end of each of the next twenty years. Zebra Finance has offered to purchase the payment stream for £1,699,000. What interest rate (to the nearest percent) was used to determine the amount of the payment?

• A) 7%
• B) 6%
• C) 5%
• D) 4%

---

Definitions:

Par Value

The face value of a bond or stock, representing the amount that the issuer agrees to pay at maturity or the nominal value assigned to a share of stock for accounting purposes.

Yield To Maturity

The total return anticipated on a bond if it is held until it matures, incorporating both interest payments and the increase or decrease in the bond's value to its face value at maturity.

Nominal Rate

The interest rate stated on a loan or financial instrument, not adjusted for inflation.

Real Rate Of Return

The rate of return on an investment after adjusting for inflation, representing the actual purchasing power gained.