Description
Directions: Answer the following questions on a separate document. Explain how you reached the answer or show your work if a mathematical calculation is needed, or both. Submit your assignment using the assignment link above.
A. You have just won the Strayer Lottery jackpot of $11,000,000. You will be paid in 26 equal annual installments beginning immediately. If you had the money now, you could invest it in an account with a quoted annual interest rate of 9% with monthly compounding of interest. What is the present value of the payments you will receive?
B. In your own words and using various bond websites, please locate one of each of the following bond ratings: AAA, BBB, CCC, and D. Please describe the differences between the bond ratings. Identify the strengths and weaknesses of each rating.
Explanation & Answer
See the attached solution. In case of anything else, let me know
1
Student’s name
Professor name
Course
Date
Week 4 Homework
Question A
Annual Interest Rate = 9%
Compounded Period = 12 periods in a year
Monthly Compounded interest rate = 0.075 (9%÷12)
To calculate the effective annual interest rate:
Effective annual interest rate = (1 + r) ^n – 1
Effective annual interest rate = (1 + 0.075) ^12 – 1
Effective annual interest rate = 1.0938 - 1.0
Effective annual interest rate = 9.38%
Annual payments = Future value ÷ number of periods
Annual payments = 11,000,000/26
Annual payments = $423,076.92
To calculate present value:
PMT = $423,076.92
2
Rate = 9.38%
Periods = 26
Present value of annuity due:
=$423,076.92
1 − (1 + 0.0938) −(26−1)
0...
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