Question no.1: Joe won a lottery jackpot that will pay him $12,000 each year for the next ten years. If the market interest rates are currently 12%, how much does the lottery have to invest today to pay out this prize to Joe over the next ten years
The lottery manager should invest $ 67802.676 now to pay off the future liabilities for ten years.
$67802.676 will grow at a 12% annum and will able the lottery manager to make yearly payment of $12000.
QUESTION NO: 2 Mary and Joe would like to save up $10,000 by the end of three years from now to buy new furniture for their home. They currently have $2500 in a savings account set aside for the furniture. They would like to make equal year end deposits to this savings account to pay for the furniture when they purchase it three years from now. Assuming that this account pays 8% interest, how much should the year end payments be