# Finance Essay

Anonymous
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Question 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.

See attached

Points: 100 Criteria 1. 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? Weight: 45% 2. 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. Weight: 45% 3. Clarity, writing mechanics, and formatting requirements. Weight: 10% Homework Set 2: Chapters 4 and 5 Unacceptable Below 70% F Fair 70-79% C Proficient 80-89% B Exemplary 90-100%A Did not submit or incompletely calculated the present value of the payments that would be received. Partially calculated the present value of the payments that would be received. Satisfactorily calculated the present value of the payments that would be received. Thoroughly calculated the present value of the payments that would be received. Did not submit or incompletely located one of the following bond ratings: AAA, BBB, CCC, and D. Did not submit or incompletely described the differences between the bond ratings. Did not submit of incompletely identified the strengths and weaknesses of each rating. Partially located one of the following bond ratings: AAA, BBB, CCC, and D. Did not submit or incompletely described the differences between the bond ratings. Partially identified the strengths and weaknesses of each rating. Satisfactorily located one of the following bond ratings: AAA, BBB, CCC, and D. Did not submit or incompletely described the differences between the bond ratings. Satisfactorily identified the strengths and weaknesses of each rating. Thoroughly located one of the following bond ratings: AAA, BBB, CCC, and D. Did not submit or incompletely described the differences between the bond ratings. Thoroughly identified the strengths and weaknesses of each rating. More than 6 errors present 5-6 errors present 3-4 errors present 0-2 errors present

FrankRose23
School: Boston College

See attached doc. In case of anything else you can always get back at me.

1

Student’s name
Professor name
Course
Date
Finance.
Question A.
Since the jackpot amount of \$11,000,000 is paid in 26 equal monthly installments, we can
determine the amount of each payment (PMT) as follows:
PMT = \$11,000,000 ÷ 26 = 423,076.9
The annual rate of interest on invested money is 9% with monthly compounding of interest and
therefore we need to calculate the effective annual rate (EAR) in this case.
EAR = = (1 + Nominal Rate / n) n – 1
EAR = (1 + 0.09/12)12 – 1
EAR = 9.38%
We will then use the formula for the present value of annuity due to calculate the present value
of an annuity due formula. The formula for the present value of annuity due is given as follows:
P = (PMT [(1 - (1 / (1 + r) n)) / r]) x (1+r)
Where:
P = present value of the annuity
PMT = annuity payment

2

r = interest rate.
n= number of periods over which payments are made. 423,076.9
Therefore, P = (\$423,076.9 [(1 - (1 / (1 + 0.0938) 26)) / 0.0938]) x (1+0.0938)
P = \$423,076.9 × 10.5271
P = \$4,453,772.83
Therefore, the present value of the payments that I will receive is \$4,453,772.83

3

Question B: Bond Ratings.
Bond rating is a classification given to a bond that indicates its credit quality and t...

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Anonymous
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