Question

Consider the following scenarios: A lump sum of $100,000, today A lump sum of $175,000 in...

  1. Consider the following scenarios:
  1. A lump sum of $100,000, today
  1. A lump sum of $175,000 in 9 years
  1. An annual annuity of $20,000 over the next 9 years.

If the appropriate interest rate is 6.00 percent, which option should you choose to receive?

Homework Answers

Answer #1

a) PV = $100,000

b)

PV = $175,000 / (1 + 6%)9

PV = $175,000/1.689479

PV = $103,582.23

c)

PV =

PV = $20,000 * 6.801692

PV = $136,033.80

Hence, Option C is the best alternative.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Find the following values: a. The future value of a lump sum of $6,000 invested today...
Find the following values: a. The future value of a lump sum of $6,000 invested today at 9 percent, annual compounding for 7 years. b. The future value of a lump sum of $6,000 invested today at 9 percent, quarterly compounding for 7 years. c. The present value of $6,000 to be received in 7 years when the opportunity cost (discount rate) is 9%, annual compounding. d. The present value of $6,000 to be received in 7 years when the...
You are to receive a sum of money, but you can choose one of two scenarios....
You are to receive a sum of money, but you can choose one of two scenarios. You can either receive $40,000 today, or receive $56,000 after 10 years at an interest rate of 13% per year compounded annually. Which of the two scenarios would you choose and why?
You have an investment from which you can receive your return in one of the following...
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 you win the lottery, and the jackpot is $50,000,000! You may either choose the annual...
Suppose you win the lottery, and the jackpot is $50,000,000! You may either choose the annual payment option or the lump sum cash option. If you choose the annual payment option, then you will receive 20 equal payments of $2,750,000 – one payment TODAY and one payment at the end of each of the next 19 years. If you choose the lump sum option, then you will receive $39,194,650.87 today. Suppose you can invest the proceeds at 3.25%. Which option...
You are offered a $2,800,000 retirement package to be given in $100,000 payments at the end...
You are offered a $2,800,000 retirement package to be given in $100,000 payments at the end of each of the next 28 years. You are also given the option of accepting a $1,950,000 lump sum payment now. Interest rates are at 3.1% over the next 28 years. Which is a better option? A.the offered annual payments of $100,000 B. the lump sum of $1,950,000 C.they are the same D. cannot be determined
SINGLE LUMP-SUM Below are four independent scenarios relating to the investment of a single lump-sum amount....
SINGLE LUMP-SUM Below are four independent scenarios relating to the investment of a single lump-sum amount. Calculate the future value of each, using the algebraic formula illustrated in the textbook. Then, verify your answer by reference to the “future value of $1” table. If you have a “business” calculator, additionally verify your calculations using the future value functions included with your calculator. a) An investment of $2,000 for 6 years and then also for 8 years, at a 6% annual...
A. A contract features a lump-sum future flow of $46,000 three years from today. If you...
A. A contract features a lump-sum future flow of $46,000 three years from today. If you can now purchase that flow for $42,201.84, then what annual implied return would you earn on this contract? B. An annuity contract will make 8 annual payments and the first payment occurs exactly a year from today. If the annuity has a 9.2% rate and a current PV or price of $308.98, then what must be the size of its annual payments? C. An...
5. Consider two (2) annuities. A $1,000 monthly annuity over 10 years with a 6.00% interest...
5. Consider two (2) annuities. A $1,000 monthly annuity over 10 years with a 6.00% interest rate. A $1,000 monthly annuity due over 10 years with a 6.00% interest rate. a. Calculate the Present Value of both annuities. b. Calculate the Future Value of both annuities. c. Which annuity would you choose to pay? d. Which annuity would you choose to receive
Suppose that you desire to get a lump-sum payment of $100,000 three years from now. Instructions:...
Suppose that you desire to get a lump-sum payment of $100,000 three years from now. Instructions: Round your answer to the nearest dollar. How many current dollars will you have to invest today at 10 percent interest to accomplish your goal? $.
Of the following car financing options, which one would you prefer while assuming that you prefer...
Of the following car financing options, which one would you prefer while assuming that you prefer paying the least amount of dollars and that you face a 10% annual compound interest rate on all your financial decisions? ********I'm looking for a break down for each option here************ A payment $10,000 today and another of $10,000 in one year from today. A lump-sum payment of $19,000 today only. A lump-sum payment of $20,000 in two years from today. A lump-sum payment...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT