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) $80,000 cash immediately, (2) $29,000 cash immediately and a six-period annuity of $8,700 beginning one year from today, or (3) a six-period annuity of $16,200 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 $155,000 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?

Answer 1

Pant 1 Option 1 Ophon 2 ophon 2: I6 200 $ go,000 today $29,000 today 8700 6Potod amrutty Annuiry yador at 6. der 6 option 2:( 29,000 1) t ($ 800 x 4.q173) 4.9173 years oplion 2: $ 1,780.72 Option 3($ 16,200 x 4.Q173) 79,660.65. Sinu Option 1 Pays 80,000 today Higher rent values optfons Option 1 s sulidad.

Part a Annual dipot 155.000 Sntt71. No. Annu 10. Present valu annutbies at dat Jauuauy 01,202 1: Annutry factor at ., 10years 7.02358 Psesent valu Anmihes = $ 155,000 'x 7.02358 G988 ot .$ - Clum) Futwu value Present value x Cit euti) 10, 88,655 x (IuOT) 44 4,5 49 Fund Belane a at2 $ 21,41,5 49 mentDee 31, 2030