A game show contestant must choose between two prizes: $500,000 in 30 years or $5,000 today. Assuming a discount rate of 12%, which is the better choice? a. The $500,000 in 30 years b. $5,000 today c. The contestant should be indifferent d. Need more information

A game show contestant must choose between two prizes: $500,000 in 30 years or $5,000 today. Assuming a discount rate of 12%, which is the better choice? a. The $500,000 in 30 years b. $5,000 today c. The contestant should be indifferent d. Need more information

Financial Accounting: The Impact on Decision Makers

10th Edition

ISBN:9781305654174

Author:Gary A. Porter, Curtis L. Norton

Publisher:Gary A. Porter, Curtis L. Norton

Chapter9: Current Liabilities, Contingencies, And The Time Value Of Money

Section: Chapter Questions

Problem 9.20MCE

See similar textbooks

Similar questions

Suppose that Dmitri just won the lottery and must choose between three award options: 1. A lump sum of $40,000,000 received today 2. 15 end-of-year payments of $5,000,000 3. 40 end-of-year payments of $3,600,000 Assume the interest rate is 8.00%, entered as 8 on your financial calculator. Note: Take the absolute value of the present value when answering this question. Using a financial calculator yields a present value for option 2 of approximately and a present value for option 3 of approximately (when the interest rate is 8.00%). Based on this, Dmitri should choose option if he seeks to maximize present value. Now assume the interest rate is 9.00%, entered as 9 on your financial calculator. Note: Take the absolute value of the present value when answering this question. Using the table you just filled out and a financial calculator, yields a present value for option 2 of approximately and a present value for option 3 of approximately v (when the interest rate is 9.00%). Based on…
Please solve this question general Accounting
you have just won the lottery and will receive $460,000 in one year. you will receive payments for 21 years, and the payments will increase 4 percent per year. if the appropriate discount rate is 11 percent, what is the present value of your winnings? Please explain how to solve using the financial calculator to show and explain steps thanks
3. Which lottery payout scheme is better? Suppose you win a small lottery and have the choice of two ways to be paid: You can accept the money in a lump sum or in a series of payments over time. If you pick the lump sum, you get $2,950 today. If you pick payments over time, you get three payments: $1,000 today, $1,000 1 year from today, and $1,000 2 years from today. At an interest rate of 8% per year, the winner would be better off accepting the , since that choice has the greater present value. At an interest rate of 10% per year, the winner would be better off accepting , since it has the greater present value. Years after you win the lottery, a friend in another country calls to ask your advice. By wild coincidence, she has just won another lottery with the same payout schemes. She must make a quick decision about whether to collect her money under the lump sum or the payments over time. What is the best advice to give your friend? The lump sum is…
As a prize, you are offered of one of the following three options:Option 1: $6,000 today, orOption 2: $8,500 in five years, orOption 3: $10,000 in seven years.Assuming you can earn 7% on your money, which option should you choose. (Brieflyexplain your choice and show all working to justify your answer.)
Calculating present and future values Use future or present value techniques to solve the following problems. Starting with $20,000, how much will you have in 12 years if you can earn 12 percent on your money? Round the answer to the nearest cent. Round FV-factor to three decimal places. Calculate your answer based on the FV-factor. $ Calculate your answer based on the financial calculator. $ If you can earn only 6 percent? Round the answer to the nearest cent. Round FV-factor to three decimal places. Calculate your answer based on the FV-factor. $ Calculate your answer based on the financial calculator. $ If you inherited $40,000 today and invested all of it in a security that paid a 9 percent rate of return, how much would you have in 25 years? Round the answer to the nearest cent. Round FV-factor to three decimal places. Calculate your answer based on the FV-factor. $ Calculate your answer based on the financial calculator. $ If the average…
You win the lottery and are offered the following choices. The appropriate discount rate is 7%. How much is each worth? Which would you choose? a. $3M today and $3M exactly 3 years from today b. $2M a year for 4 years, with the first payment starting exactly one year from today c. $350K a year forever, with the first payment starting one year from today
Can you help me with a and b?
A morning radio show offered the following four prizes as alternative prizes for one of its competitions. Which prize is the most valuable if your discount rate is 6%? (Show working to justify your answer.) (a) $5,000 per year, forever, with the first amount paid after 1 year. (b) $12,000 per year for eight years, with the first amount paid today. (c) $20,000 today and $80,000 six years from now. (d) $15,000 per year for ten years, with the first amount paid at year 5. (e) State the most valuable prize. (Give a reason for your choice.)
As the winner of a competition you are entitled to $5,000 at the end of next year, with this amount growing at 10% p.a. until the end of year 10. Assuming the interest rate for valuing this prize is 5% p.a., the future value of this prize at the end of year 10 is closest to: Group of answer choices $59,233. $96,485. $153,634. The future value cannot be calculated.
You are offered the right to receive $1,000 per year forever, starting in one year. If your discount rate is 6%, what is this offer worth to you? This offer is worth $ View an example (Round to the nearest dollar.) Get more help - O search D m/Player/Player.aspx?cultureld=&theme-finance&style=highered&disableStandbyIndicator=true&assignmentHandlesLocale=true 4- A www. Clear all 16
Suppose you have won $1,122,000 in the lottery. You have two options. Option 1: Take a lump sum of $953,700. Option 2: Receive the entire amount of your winnings in 240 monthly installments of $4,675.00. Either way, you have decided to be very disciplined about this money and invest all you receive. a. Suppose you take Option 1 and deposit the lump sum of $953,700 into an account that pays an APR of 4% compounded monthly. Find the account balance after 20 years. Option 1: $ _____________ b. Suppose you take Option 2 and deposit your monthly installments of $4,675 into an account with the same terms: APR of 4% compounded monthly. Find the account balance after 240 monthly deposits. Option 2: $ _____________ c. How much do you gain by taking the money in a lump sum (Option 1)? Gain by Choosing Option 1: $ _____________