Difference between the present value of the Strayer lottery jackpot

Full Answer Section

  where:

• Present Value = the amount of money you would need to invest today
• Future Value = the amount of money you will receive in the future
• r = the interest rate
• t = the number of years

In this case, the future value is $11,000,000, the interest rate is 9%, and the number of years is 26. So, the present value of the Strayer Lottery Jackpot is: The Difference Between the Present Value and the Future Value The difference between the present value and the future value of the Strayer Lottery Jackpot is due to the time value of money. The time value of money is the idea that money today is worth more than money in the future because of the opportunity to earn interest on it. In this case, the present value of the Strayer Lottery Jackpot is less than the future value because you would have to wait 26 years to receive the full amount. Bond Ratings Bond ratings are a way of assessing the risk of a bond. The higher the bond rating, the lower the risk. Bond ratings are assigned by credit rating agencies, such as Moody's and Standard & Poor's. The following table shows the different bond ratings and their associated risk levels: The risk level of a bond is determined by a number of factors, including the financial strength of the issuer, the terms of the bond, and the economic environment. Bond Websites I used the following bond websites to locate one of each of the following bond ratings: AAA, BBB, CCC, and D:

• Moody's: https://www.moodys.com/
• Standard & Poor's: https://www.standardandpoors.com/
• Fitch Ratings: https://www.fitchratings.com/
• The Bond Buyer: https://www.bondbuyer.com/

Strengths and Weaknesses of Each Rating The strengths and weaknesses of each bond rating are as follows:

• AAA: AAA bonds are considered to be the safest bonds available. They have the lowest risk of default. However, they also tend to have the lowest yields.
• BBB: BBB bonds are considered to be investment grade bonds. They have a moderate risk of default. However, they tend to have higher yields than AAA bonds.
• CCC: CCC bonds are considered to be non-investment grade bonds. They have a high risk of default. However, they tend to have very high yields.
• D: D bonds are considered to be defaulted bonds. They have no value and are unlikely to be repaid.

Conclusion The present value of the Strayer Lottery Jackpot is less than the future value because of the time value of money. Bond ratings are a way of assessing the risk of a bond. The higher the bond rating, the lower the risk. The strengths and weaknesses of each bond rating vary depending on the investor's risk tolerance and investment goals.

Sample Solution

  Calculating the Present Value of the Strayer Lottery Jackpot The present value of an investment is the amount of money that you would need to invest today in order to receive a certain amount of money in the future. The present value of the Strayer Lottery Jackpot can be calculated using the following formula: