Question

You just won the El Chapo Lottery and now you have a choice of payout plans PAYOUT 1: You may elect to receive a lump sum of $5,000 kwenty-five years from today. PAYOUT 2: You can take $2,000 today PAYOUT 3: You may choose to receive 10 annual payments of $500 with the first payment given to you four years from today You have no immediate need for the money, so will put any and all cash flows that you receive into a special bank account which pays you 4% compounded annually. What would be the amount in your bank account at the end of twenty-five years for each of the three payout options?

Answer 1

Cash flows received any or all will put in special bank account which pays 4%. Capaunded annuelly: Payout 1 - Since the payout will be received 25 years from today. The amount available after 25 years I from today will be & Sooo. layout-2 You can take $200 today and put it in bar & recein 4% interest campanded annually. Tutume lame after 25 years in bank account - Incested Am runt litry - 2ooo (it 0.04) - $ 5331.67 layout -3 . To annuel annuities will the recited with first payment 4 years from Today. Since interest comparing will stout as soon as amant is deponted which is 4 yeous. Future Value = Annual Anneutics a (48)" - 11 Sax (120.00) = ! = $ 600 3.05 since this future value will he at the end d. T4 years from Today, $ 6003.05 will eam further into interest camp cunding for lo years.
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Date reture Value after 25 years tetine Velne. Amant after 11 years (14) - 6003.05/1to .04) - $9241.42 To, Amant after 25 yeous $9241.42.
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