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 $39 million. You have three options. (a) Receive $1.95 million per year for the next 20 years. ) Have $12.75 million today (c) Have $2.75 million today and receive $1,650,000 for each of the next 20 years. Your financial adviser tells you that it iseasonable to expect to earn 13 percent on investments 1. Calculate the present value of each option. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factorls) from the tables provided. Enter your answers in dollars, not in millions.) Present Value Option A Option B Option C 2. Determine which option you prefer O Option O Option C O OptionB

Explanation / Answer

1 Present value Option A 13698263 =1950000*7.02475 Option B 12750000 Option C 14340838 =2750000+(1650000*7.02475) 2 Option C is preferable

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