Exercise 9-6 Chuck has just won the Flyball Lottery. He has two options for rece

Question

Exercise 9-6 Chuck has just won the Flyball Lottery. He has two options for receiving his prize. The first option is to accept a $133,000 cash payment today. The second option is to receive $21 200 at the end of each of the next 12 years and a $25,200 un sum payment n the 13th year. Chuck can invest money at a 7% rate. Click (a) Calculate the present value of the two options. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to O decimal place, e.g. 58,971.) Option1 Option 2 Present value $ Which option should Chuck choose to receive his winnings? (b) If Chuck could invest money at 10%, calculate the present value of the two options. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to O decimal place, e.g. 58,971.) Option1 Option 2 Present value Which option should he choose?

Explanation / Answer

a) Calculate present value :

Option 2 Should chuck choose.

b) Calculate present value :

Option 2 Should choose

Option 1 Option 2 Present value $133000 (21200*7.9427+25200*0.4440) = $179574

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