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    Annuities: Astros's homerun hitting contest; evaluation the prize choices

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    Astros Co is sponsoring a homerun hitting contest, with the winner receiving a choice between two equivalent prizes. Prize 1 is a lump-sum amount to be paid on 10/1/05. Prize 2 pays a total of $90,000,000 as follows: $5,000,000 per year starting on 10/1/06 with the final payment made on 10/1/14, plus bonus payments of $15,000,000 on 10/1/05, 10/1/10 and 10/1/15. The interest rate for this type of prize structure is 5%.

    ** Compute the amount that:
    1) The 9 payments of $5,000,000 contribute to the value of Prize 1
    2)The 3 payments of $15,000,000 contribute to the value of Prize 1
    3)Will be offered for Prize 1

    **If prize 2 is selected and the payments are invested at 5% when received, compute the amount that:
    4)The 9 payments of $5,000,000 from prize 2 will be worth at 10/1/15
    5)The 3 payments of $15,000,000 from prize 2 will be worth at 10/1/15
    6)The 12 total payments from prize 2 will be worth at 10/1/15

    **7)If prize 1 is invested at 5% when received, compute the amount that prize 1 will be worth at 10/1/15

    CLUE MUST MATCH::::The value at 10/1/15 of the 3 $15,000,000 payments is approximately $23,038,450 more than the value of the 9 $5,000,000 payments at 10/1/05

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    https://brainmass.com/business/annuity/annuities-astross-homerun-hitting-contest-evaluation-prize-choices-51742

    Solution Preview

    Astros Co. is sponsoring a homerun hitting contest, with the winner receiving a choice between two equivalent prizes. Prize 1 is a lump-sum amount to be paid on 10/1/05. Prize 2 pays a total of $90,000,000 as follows: $5,000,000 per year starting on 10/1/06 with the final payment made on 10/1/14, plus bonus payments of $15,000,000 on 10/1/05, 10/1/10 and 10/1/15. The interest rate for this type of prize structure is 5%.

    ** Compute the amount that:
    1) The 9 payments of $5,000,000 contribute to the value of Prize 1
    We calculate the net present value of 5,000,000 for a period of 9 years. This can be ...

    Solution Summary

    The solution presents a detailed explanation of the formulas and calculations to arrive at the answer. The payments to contribute to the value of the prizes are determined.

    $2.19

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