Question

Congratulations. You have won $10,000 in a competition. You can
choose either to receive the full amount today (suppose today is
January 1^{st}) or to receive five equal payments in the
coming five years (payment will be made at the end of a year).
However, if you choose the first option, the income tax is 35%. For
the second option, the annual income tax for five equal payments is
20%. If your opportunity cost (required return rate) is 8%
annually, which option is better for you?

Answer #1

Congratulations! You have just won the State Lottery. The
lottery prize was advertised as an annuitized $105 million paid out
in 30 equal annual payments beginning immediately. The annual
payment is determined by dividing the advertised prize by the
number of payments. You now have up to 60 days to determine whether
to take the cash prize or the annuity.
a. If you were to choose the annuitized prize, how much would you
receive each year?
b. The cash prize...

2. You just won a Million Dollar lottery and you can choose one
of the following two options to claim your winning. If you choose
Option A, you will receive $40,000 every year for 25 years (40,000
x 25 = $1,000,000 hence the name), with the first payment to occur
one year from today. But you may also choose Option B, in which
case you will receive a single payment of $600,000 today. The
applicable tax rate for the annual...

You have just won a jackpot of $15,000,000 in the lottery and
must choose between a lump sum
payment today of $10,000,000 or equal installments of $750,000
per year with the first
installment coming today and the remainder coming at the end of
each of the next 19 years. If
you can invest the proceeds and earn 5 percent, which option
should you choose? At what
interest rate would you be indifferent between the cash and
annual payment options. You...

Congratulations: You have won the lottery! The State of
Confusion has three payment options for your winnings. Option 1 is
a lump sum payment of $3,500,000 today; Option 2 is a lump sum
payment of $5,000,000 in five years; and Option 3 is annual
payments of $200,000 for the next 20 years (first payment today).
Which option is the most lucrative to you in present year dollars?
(Assume a 1% inflation rate and an ability to earn 4% interest on...

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...

Congratulations! You have just won the lottery ,which will pay
you an annuity of $50,000 per year for the rest of your life. If
you are 21 today and will die with certainty at 90, this means you
will receive 70 payments of $50,000. Let’s say someone offers to
give you $1,000,000 today in exchange for this annuity. If the
interest rate is 5%, should you take this deal? Why or why not?

Kristina just won the lottery, and she must choose among three
award options. She can elect to receive a lump sum today of $61
million, to receive 10 end-of-year payments of $9.4 million, or to
receive 30 end-of-year payments of $5.4 million.
If she thinks she can earn 7% percent annually, which should she
choose?
If she expects to earn 8% annually, which is the best
choice?
If she expects to earn 9% annually, which option would you
recommend?
Explain...

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.

We won our lawsuit against Dewey, Cheetum, and Howe. We have
four options for receiving our settlement:
Option A: Receive $100,000 today.
Option B: Receive $108,000 on year from today.
Option C: Receive $20,000 a year for 8 years.
Option D: Receive $10,000 a year for 30 years.
We can invest our settlement at an interest rate of 8%
compounded annually. Which Option should we choose? You must show
your work!

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?

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 32 minutes ago

asked 33 minutes ago

asked 41 minutes ago

asked 54 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago

asked 2 hours ago