You Have a Choice Between a Lottery Lump Sum Payout

question 102

Multiple Choice

You have a choice between a lottery lump sum payout of $10,000,000 today or a series of twenty-five annual annuity payments (first payment one year from today) .At a discount rate of 6.50%,how large must the annual annuity payments be to make you indifferent between the two choices?

• A)$819,814.81
• B)$873,102.77
• C)$769,779.17
• D)$400,000.00

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Definitions:

Call Protection

Call Protection is a feature of some bonds that prohibits the issuer from redeeming the bond before a specified period, protecting bondholders from early repayment.

Conversion Feature

Refers to an option within a bond or preferred stock that allows the holder to convert it into a certain number of shares of the issuing company's common stock.

Dividend Yield

The ratio of a company's annual dividends relative to its share price, indicating how much income investors are getting from their investment.

Yield-To-Maturity

Yield-to-maturity (YTM) is the total return anticipated on a bond if the bond is held until it matures, incorporating both interest payments and the capital gain or loss realized upon maturity.