After hearing a knock at your front door, you are surprised to see the Prize Pat

Question

After hearing a knock at your front door, you are surprised to see the Prize Patrol from a large, well-known magazine subscription company. It has arrived with the good news that you are the big winner, having won $13.20 million. You discover that you have three options: (1) you can receive $1.32 million per year for the next 10 years, (2) you can have $11.20 million today, or (3) you can have $1.95 million today and receive $1.01 million for each of the next 10 years. Your lawyer tells you that it is reasonable to expect to earn 10 percent on investments.





What is the present value of the above options? (Use Table 2) (Round "PV Factors" to 4 decimal places and final answers to the nearest dollar amount. Enter your answers in whole dollar amounts and not in millions of dollars (for example enter $1.2 million as $1,200,000). Omit the "$" sign in your response.)






Present value

Option 1

$

Option 2

$


option 3

which option do you prefer?

Explanation / Answer

Year 0 1 2 3 4 5 6 7 8 9 10 Option 1 0 1.32 1.32 1.32 1.32 1.32 1.32 1.32 1.32 1.32 1.32 Option 2 11.2 0 0 0 0 0 0 0 0 0 0 Option 3 1.95 1.01 1.01 1.01 1.01 1.01 1.01 1.01 1.01 1.01 1.01 In $ million Discounted Value Present Value Option 1 0.00 1.20 1.09 0.99 0.90 0.82 0.75 0.68 0.62 0.56 0.51 8.110829 Option 2 11.20 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 11.200000 Option 3 1.95 0.92 0.83 0.76 0.69 0.63 0.57 0.52 0.47 0.43 0.39 8.156013 Answer: Present values are as follows Option 1: 8110829 Option 2: 11200000 Option 3: 8156013

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.