a. You win a lottery, and there are no other winners. The announced prize is $30 million which is paid in 30 equal installments of $1 million. The first payment is made right now. Each subsequent payment is made at the end of each of the next 29 consecutive years. If you choose, you can take a lump-sum payment now. Suppose that the lottery commission uses a 6% discount rate. What is the value of the lump-sum payment?
b. A bond is in a risk class that pays 5% per year. The bond pays annual interest of $400 (first interest payment is one year from now) and matures in 10 years at a value of $10,000. What is the price of the bond?