In this activity, you will carry out calculations and research that help you understand how to evaluate the return and risk on investments.
Answer these questions in a 1–2 page paper.
- 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.
- Calculate the present value of the payments you will receive. Show your calculations using formulas in your paper or in an attached spreadsheet file.
- 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.
- Compare the information about risk and return indicated by different bond ratings. Support your answer with references to research.
- 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.
- Identify the strengths and weaknesses of each rating.