Having just won the Bald Knob Flea Market’s annual Pork rind-eating contest

Having just won the Bald Knob Flea Market’s annual Pork rind-eating contest, Braden must choose to take his winnings in one of two ways:
a. $10,000 now, or
b. $1,500 per year for life (given his dietary practices, he estimates this at about 15 years)
Assuming his required rate of return is 6.5%, what’s your recommendation?

Expert Solution

b.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

=1500[1-(1.065)^-15]/0.065

=1500*9.40266885

=$14104.00(Approx)

Hence he must take $1500 per year for life ie about 15 years

jeff jeffy answered 2 years ago

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