Alex Meir recently won a lottery and has the option of receiving
one of the following three prizes: (1) $70,000 cash immediately,
(2) $24,000 cash immediately and a six-period annuity of $8,100
beginning one year from today, or (3) a six-period annuity of
$14,500 beginning one year from today. (FV of $1, PV of $1, FVA of
$1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate
factor(s) from the tables provided.)
1. Assuming an interest rate of 7%, determine the
present value for the above options. Which option should Alex
choose?
Assuming an interest rate of 7%, determine the present value for
the above options. Which option should Alex choose? (Round your
final answers to nearest whole dollar amount.)
|
|
|
Annuity Payment |
PV Annuity |
|
Immediate Cash |
|
PV Option |
| Option 1 |
|
|
+ |
|
= |
$0 |
| Option 2 |
|
|
+ |
|
= |
$0 |
| Option 3 |
|
|
+ |
|
= |
$0 |
| Which option should Alex choose? |
|
|
|