a)let us find the present value in both cases and whichever is
higher we need to choose it
34000 for next 25 years
use pv formuale in excel:pv(rate,nper,pmt,fv,type)
=pv(7%,25,34000,0)=396221.83
other option is to receive 545000 now
we should take amount 545000 now since this is higher than other
option
25 year annuity it is 396221.83
lump sum it is 545000
choose lump sum because the present value is gretaer
b)=pv(9%,25,34000,0)=333967.71
25 year annuity it is 333967.71
lump sum it is 545000
choose lump sum because the present value is gretaer
c)use rate formuale in excel
=rate(nper,pmt,pv,fv,type)
=rate(25,-340000,545000,0,0)
=3.76%
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