Prizes Are Often Not "Worth" as Much as Claimed

question 89

Multiple Choice

Prizes are often not "worth" as much as claimed.What is the value of a prize of $5,000,000 that is to be received in 20 equal yearly payments,with the first payment beginning today? Assume an interest rate of 7%.

• A) $2,833,898.81
• B) $2,911,015.68
• C) $2,609,144.14
• D) $2,738,304.13

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Definitions:

Early Redemption

The process of repaying a debt or obligation before its official due date, which may involve a penalty or premium.

Bondholder

An investor or owner of bond securities who has lent money to the issuing entity, such as a corporation or government.

Call Premium

The additional amount that must be paid by an issuer to redeem a bond before its specified call date.

Coupon Bond

A type of bond that offers interest payments through coupons attached to the bond, redeemable by the holder at certain times.