1. As a new employee in the Lottery Commission, your first job is to design a ne
ID: 2735579 • Letter: 1
Question
1. As a new employee in the Lottery Commission, your first job is to design a new prize. Your idea is to create two grand prize choices: (1) receiving the lump sum of $1 million at the end of year 5, or (2) receiving $500,000 today followed by a lump sum amount at the end of year five. Using an interest rate of 8%, which of the following comes closest to the amount prize (2) needs to pay at the end of year five in order for both prizes to have the same present value?
$265,336
$1,000,000
$333,333
$500,000
$680,580
2. Simon and Simon, makers of cell phones, has a history of paying a dividend of $1.00 per share to their shareholders. Which of the following describes the likely response to the per share price of Simon and Simon with respect to the dividend?
The stock price will rise by $1 on the ex-dividend date
The stock price will fall by more than $1 on the record data
The stock price will not rise nor fall on any of these dates
The stock price will fall by $1 on the ex-dividend date
The stock price will rise by more than $1 on the record date
a.$265,336
b.$1,000,000
c.$333,333
d.$500,000
e.$680,580
Explanation / Answer
Ans: Case 1: Lumpsum amount at the end of year5 Year Cash flow PVAF 8% Cash flow 1 0 0.9259 2 0 0.8573 3 0 0.7938 4 0 0.7350 5 1000000 0.6806 680583.2 Case 2 $500000 receive as on today anf 5 lakh later Year Cash flow PVAF 8% Cash flow 0 500000 1 500000 1 0.9259 2 0.8573 3 0.7938 4 0.7350 5 500000 0.6806 340291.6 Total 840291.6 Ans E is correct it 680583 Ans 2 Ans D is correct ie The stock price will fall by $1 on the ex-dividend date
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.