Problem:
The price in last week's National Lottery was estimated to be worth £35 million. In the lottery, if you were lucky enough to win, the National Lottery will pay you £1.75 million per year over the next 20 years. Assume that the first instalment is received immediately.
a) If interest rates are 8%, what is the present value of the prize?
b) If interest rates are 8%, what is the future value after 20 years?
c) How would your answers change if the payments were received at the end of each year?
d) Briefly explain any two of the following:
i) Forward Contracts
ii) Swaps
iii) Assets Beta and Equity Beta