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?

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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.

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