Calculate the present value of the payments you will receive

 

Week 4 Activity – Returns and Bond Ratings

Overview

In this activity, you will carry out  calculations and research that help you understand how to evaluate the  return and risk on investments. 

Instructions

Answer these questions in a 1–2 page paper. 

  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.     

  1. Calculate the present value of the payments you will receive.  Show your calculations using formulas in your paper or in an attached  spreadsheet file.

  1. Explain why there is a difference between the present value of  the Strayer lottery jackpot and the future value of the 26 annual  payments based on your calculations and the information provided.

  1. Compare the information about risk and return indicated by  different bond ratings. Support your answer with references to research.  

    

  1. Use various bond websites to locate one of each of the following  bond ratings: AAA, BBB, CCC, and D. Research the differences between  the bond ratings, the required interest rates, and the risk. List the  websites used as sources for this research.

  1. Identify the strengths and weaknesses of each rating.

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