Alex Meir recently won a lottery and has the option of receiving one of the foll

Question

Alex Meir recently won a lottery and has the option of receiving one of the following three prizes: (1) $82,000 cash immediately, (2) $30,000 cash immediately and a six-period annuity of $9,000 beginning one year from today, or (3) a six-period annuity of $17,000 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 7%, 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, 2027. Weimer will make annual deposits of $160,000 into a special bank account at the end of each of 10 years beginning December 31, 2018. Assuming that the bank account pays 8% interest compounded annually, what will be the fund balance after the last payment is made on December 31, 2027?

Complete this question by entering your answers in the tabs below.

Required 1

Assuming an interest rate of 7%, determine the present value for the above options. Which option should Alex choose? (Round your final answers to nearest whole dollar amount.)

  

Required 2

The Weimer Corporation wants to accumulate a sum of money to repay certain debts due on December 31, 2027. Weimer will make annual deposits of $160,000 into a special bank account at the end of each of 10 years beginning December 31, 2018. Assuming that the bank account pays 8% interest compounded annually, what will be the fund balance after the last payment is made on December 31, 2027? (Round your final answers to nearest whole dollar amount.)

Explanation / Answer

Answer 1)

Present value of Annuity will be calculated by use of 'PV' function in excel

, -PV( 7%, 6, amount of annuity)

Calculated below:

Answer 2)

Future value of payment will be calculated by use of 'FV' function in excel

, -FV( 8%, 10, annual amount paid)

calculated Below:

Annuity Payment PV Annuity Immediate Cash PV Option Option 1 0 + $82,000 = $82,000 Option 2 $9,000 $42,898.86 + $30,000 = $72,899 Option 3 $17,000 $81,031.17 + 0 = $81,031 Which option should Alex choose? Option 1

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