Question

(i) You are given the following options:

Alternative 1: Receive 10 years from now a single payment of 75,000.

Alternative 2: Receive 10,000 each year for 5 years, the first payment now.

Alternative 3: Receive 25,000 now and the same amount 5 years from now.

Suppose the interest rate is 5% per annum. Which option is the best?

Answer #1

You are considering two investment options. In option A, you
have to invest $4500 now and $1000 three years from now. In option
B, you have to invest $3500 now, $1000 a year from now, and $1000
three years from now. In option A, you will receive four annual
payments of $2000 each (you will get the first $2000 payment a year
from now).
In option B, you will receive a payment equal to $4000 at the
beginning of year...

Suppose you can choose one of the following two options:
Option A: Receive $25 per year for 25 years with the first
payment in year 5.
Option B: Receive $X per year forever with the first payment
this year. Solve for X that makes you indifferent between these
options. r = 5%.
SHOW WORK

John is going to receive a $25,000 gift five years from now.
Carol is going to receive a gift of the same amount seven years
from now. Both use the same discount rate of 5%.
Pick the correct statement related to their gifts from
below.
The present values of John's and Carol's gifts are equal.
In future dollars, Carol's gift is worth more than John's
gift.
In today's dollars, John's gift is worth more than Carol's.
Twenty years from now,...

Suppose that 5 years from now you will receive $10,000 at the
end of every year for 5 years. What is the present value of this
annuity if the opportunity cost rate is 5%?

You have an investment from which you can receive your return in
one of the following ways: Option A: An annuity with payments of
$100,000 each for the next ten years, with the first payment
commencing today. Option B: A lump-sum one-time payment of
$1,005,757 after five years. The interest rate is 6%, compounded
annually. Which option has the greater present value?
Option B.
Both options have the same present value.
Option A.

Suppose that you will receive annual payments of $12,500 for a
period of 10 years. The first payment will be made 9 years from
now. If the interest rate is 6%, what is the present value of this
stream of payments? (Do not round intermediate calculations. Round
your answer to 2 decimal places.)

Lottery problem. You win a lottery of $10
million. You have the following two options to receive it. First,
to receive $1million each year at the end of each year for 10 years
(annuity option). Second, to receive $5 million right now (cash
option). Make sure that you draw the timelines for the two options
in order to understand the alternatives. Show your work in
answering the questions.
a) What is the present value of the annuity option?
Assume the...

Suppose that you will receive annual payments of $12,500 for a
period of 10 years. The first payment will be made 9 years from
now. If the interest rate is 6%, what is the present value of this
stream of payments? (Do not round intermediate calculations. Round
your answer to 2 decimal places.) SOLVE USING EXCEL FUNCTIONS

Gloria borrows 100,000 to be repaid over 30 years. You are
given:
(i) Her first payment is X at the end of year 1.
(ii) Her payments increase at the rate of 100 per year for the
next 19 years and remain level for the following 10 years.
(iii) The effective rate of interest is 5% per annum.
Calculate X
Ans: 5505

You are responsible to pay back the following: $400 due today,
$500 due in five months, and $618 due in one year. You are given
the option: instead of making the above 3 payments, you can pay the
same amount as a single payment 9 months from now. Assuming a 12%
per annum (p.a) interest rate, how much will the single payment
be?

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