Question

A woman who has won a prize is oered a lump sum of K1,000,000 to invest now or K550,000 to invest at the end of this year and another K550,000 to invest at the end of the following year. If all investments are assumed to earn 7% pa, which should she choose if she intends to withdraw the money after (i) 4 years, (ii) 2 years.

Answer 1

ans i)	4 year
	future value of option 1 =		1310796
	=1000000*(1.07)^4
	Future value of option 2 =		1303469
	=550000*(1.07)^3+550000*(1.07)^2
	since value of option 1 is higher therefore option 1 should be preferred
ans ii)	2 year
	future value of option 1 =		1144900
	=1000000*(1.07)^2
	Future value of option 2 =		1138500
	=550000*(1.07)+550000
	here also future value of option 1 is higher therefore option 1 should be preferred