1. Tom won the jackpot of Powerball. He will receive $50,000 per quarter for 20
ID: 2744490 • Letter: 1
Question
1. Tom won the jackpot of Powerball. He will receive $50,000 per quarter for 20 years. If you can earn 9 percent on your money, what is this prize worth to you today?
A.
$1,712,252.71
B.
$1,738,411.06
C.
$1,812,338.40
D.
$1,847,489.04
2. You are looking at two investment options. Option A pays 5.25%, with daily compounding. Option B pays 5.3%, with semiannual compounding. Which investment will you choose?
A. Option A
B. Option B
C. Both option are the same
D. We can’t tell given the available information.
3. Suppose Crane reported net profit of $10 million this year. It decides to distribute 6.5 million to its shareholders as dividends and uses the retained earnings to open new stores. The return on investment for the shareholders is expected to be 14%. What will be its internal growth rate?
A) 5.11%
B) 6.76%
C) 4.9%
D) 3.21%
4. You are ready to retire. A glance at your 401(k) statement indicates that you have $750,000. If the funds remain in an account earning 9.0%, how much could you withdraw at the beginning of each year for the next 25 years?
A) $55,620
B) $70,050
C) $35,830
D) $2,500
A.
$1,712,252.71
B.
$1,738,411.06
C.
$1,812,338.40
D.
$1,847,489.04
Explanation / Answer
1)
quarterly payment = $50000
No of years = 20
No of periods/quarters = 20 * 4 = 80
Rate of Interest = 7% per annum = 9% / 4= 2.25% per quarter
We have to calculate the present value which can be calulate using the PV function of excel. The syntax for the same is =PV(2.25%,80,50000).
Worth of prize today = $1847489.04
Therfore, option D is correct.
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