Directions: Answer the following questions in 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.
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?
In your own words and using various bond websites, locate one of each of the following bond ratings: AAA, BBB, CCC, and D. Describe the differences between the bond ratings. Identify the strengths and weaknesses of each rating.
Grading for this assignment will be based on answer quality, logic/organization of the paper, and language and writing skills, using the following rubric.
W4 HW# 2 HINTS
First you calculate the annual payment = 11000000/26 = ……….????????
second you have the nominal annual interest rate = 9% = 0.09 but it is compounded monthly,
so you should calculate the Effective annual interest rate (EAR)
12
EAR = ( 1 + 0.09/12) – 1 = ………..???
Using Excel : EAR ——–à =(1+(nominal i/12))^12-1=…….
number of period or years = 26
payments are annual and equal, so you have a series of equal annual payments, which is Annuity
and because the payments are paid at the beginning of the year then the payments are “Annuity Due”
Future value = FV = 0
Present value = PV = ?????????
Go to EXCEL, type: =PV( )
It will ask you to provide information about =PV( rate,nper,pmt,fv,type)
rate = the EAR which you calculated
nper= 26
pmt= 11000000/26=
fv=0
Type= 1
Click enter you get the present value.
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