Question

Answer each of the following independent questions. Alex Meir recently won a lottery and has the option of receiving one of the following three prizes: (1) $64,000 cash immediately. (2) $20,000 cash immediately and a six-period annuity of $8,000 beginning one year from today, or (3) a six-period annuity of $13,000 beginning one year from today. (FV of $1. PV of $1. FVA of $1. PVA of $1. FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) 1. Assuming an interest rate of 6%, determine the present value for the above options. Which option should Alex choose? 2. The Weimer Corporation wants to accumulate a sum of money to repay certain debts due on December 31, 2030. Weimer will make annual deposits of $100,000 into a special bank account at the end of each of 10 years beginning December 31, 2021. Assuming that the bank account pays 7% interest compounded annually, what will be the fund balance after the last payment is made on December 31, 2030? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Assuming an interest rate of 6%, determine the present value for the above options. Which option should Alex choose? (Round your final answers to nearest whole dollar amount.) PV Annuity Immediate Cash PV Option Annuity Payment Option 1 Option 2 Option 3 Which option should Alex choose? Option 1 Required Required 2 >

Answer 1

1.

	Annuity payment	PV Annuity		Immediate Cash		PV Option
Option 1	0		+	64000	=	64000
Option 2 (8000*4.917)	8000	39338.59	+	20000	=	59338.59
Option 3 (13000*4.917)	13000	63925.22	+	0	=	63925.22

PV Annuity = PVIFA (6%,6Years) which comes 4.917.

2. Due date of debt = December 31, 2030

Starting payment from 31st December 2021 and last payment will be December 31, 2030

Total No. of payments = 10

Future value of annuity = periodic payment*[(1+i/m)^(m*n)-1]/(i)

Where periodic payment = 100000

i (interest rate) = 7%

compounding annually (m) = 1

no . of payment = 10

put all the values in formula

Future value = 100000*[(1+0.07)^10 - 1]/(0.07)

= 100000*(1.967 - 1)/(0.07)

= 100000*0.967/0.07

= 96715.136/0.07

= 1381644.8

or 1381645

The fund balance after the last payment is made on December 31, 2030.

Please check with your answer and let me know.