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