Super Bowl Problem

Super Bowl Problem - For the next super bowl in 2012...

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Unformatted text preview: For the next super bowl in 2012 your company considers offering a promotion where participants can win to visit all future super bowl events (starting with 2012 and repeating every year) for the rest of their lives. (14 points total) Assume attending the super bowl in 2012 costs $5,000 (including airfare, hotel, food, tickets, etc.). If you can invest at rate of return of 4%, how much would you have to set aside today to make sure that you never run out of money. (3 points) Perpetuity: PV = C/r = $5,000 / 0.04 = $125,000 To refine your model assume the cost for attending the super bowl will increase by 2% every year. What would the price be worth now using the dividend growth model? (4 points) Don’t worry, be happy. Will find out how to do that in the next weeks. Using the 2% growth rate, how much will it cost in future dollars to attend the Superbowl at the beginning of the next century in 2100? (4 points) Formula: $5,000 (1+0.02)^(2100 ­2012) = $28,561.77 Calculator: PV =  ­$5,000, PMT = $0, I/Y = 2%, N = 88 CPT FV  $28,561.77 How much is that cost in 2100 worth in today’s dollars using the same 4% rate of return? (3 points) Formula: $28,561.77 / (1+0.04)^88 = $905.42 Calculator: FV =  ­$28,561.77, PMT = $0, I/Y = 4%, N = 88 CPT PV  $905.42 ...
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