Answers Financial Engineering and Risk Management Part I week 3 Answers
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Answers/disc... Financial Engineering and Risk Management Part I week 2
1. A major lottery advertises that it pays the winner $10 million. However this prize money is paid at the rate of $500,000 each year (with the first payment being immediate) for a total of 20 payments. What is the present value of this prize at 10% interest compounded annually? Report your answer in $millions, rounded to two decimal places. So, for example, if you compute the answer to be 5.7124 million dollars then you should submit an answer of 5.71. 2. A young couple has made a deposit of the first month's rent (equal to $1,000) on a 6-month apartment lease. The deposit is refundable at the end of six months if they stay until the end of the lease. The next day they find a different apartment that they like just as well, but its monthly rent is only $900. And they would again have to put a deposit of $900 refundable at the end of 6 months. They plan to be in the apartment only 6 months. Should they switch to the new apartment? Assume an (admittedly unrealistic!) interest ...