Question

3. Kelsey just won the lottery, and she must choose among three award options .She can elect (1) to receive a lump sum today of $62 million, (2) to receive end-of-month payments of $0.8 million for 10 years or (3) to receive end-of month payments of $0.47 million for 30 years. If she can earn 9% annually (i.e., the discount rate is 9% per year), which is the best choice based on the PV of the three award options?

a) PV of 1st award option:

b) PV of 2nd award option:

                   N=                                I/YR=                          PMT=                      FV=                        PV=

c) PV of 3rd award option

                    N=                                I/YR=                          PMT=                      FV=                        PV=

d) Which is the best choice for Kelsey?

4. Suppose Sam deposits $100 in an account at the end of this year, $300 at the end of the next two year, $50 at the end of the following year. If the annual interest rate is 4%, how much will be in the account immediately after the fourth deposit is made? Do you think it is enough to purchase a $785 airline ticket to Paris?    

               0                              1                              2                              3                              4       Years

               |                               

4%

|                              |                              |                              |

               0                            100                          300                          300                          50

Answer 1