Question

9. Your deceased third cousin left you $500,000. There are two payment options: you receive $50,000 a year for 10 consecutive years (option 1), or you receive $62,500 a year for 8 years (option 2). Which payment option should you choose, if the interest rate is 4.5%?

a. Option 1

b. Option 2

c. Either option

10. Sarah is 30 years old and wants to save for her retirement. She plans to deposit $1,000 into a bank account every year until she is 65. If the interest rate is 5.5%, how much money will Sarah have in the bank account when she retires?

a. 105,121

b. 100,721

c. 100,251

d. 100,521

Answer 1

9) option 2 is better as compared to option 1 as it has high present value of payments received.

10) money Sarah will have in bank account when retires is $100,251