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    Coupons, Lottery and Debt

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    1. A 30-year zero-coupon that yields 12% percent is issued with a $1000 par value. What is the issuance price of the bond (round to the nearest dollar)?

    2. Rita won a $60 million lottery. She is to receive $1 million a year for the next 50 years plus an additional lump sum of $10 million after the 50th year. The discount rate is 10%. What is the present value of her winnings?

    3. You owe $30,000 payable at the end of five years, what amount should your creditor accept in payment immediately if he could earn 11% on the money?

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    Solution Preview

    1. t=30 r=12%
    The value of bond is the PV of the principal repayment. In case of zero coupon bonds, there is no interest ...

    Solution Summary

    This solution provides calculations for insurance price, present value, and amount payable.