a. If your investment rate over the next 25 years is 12%, which payoff will you choose? b. If your investment rate over the next 25 years is 8%, which payoff will you choose? c. At what investment rate will the annuity stream of $160,000 be the same as the lump-sum payment of $1,452,326?

a. If your investment rate over the next 25 years is 12%, which payoff will you choose? b. If your investment rate over the next 25 years is 8%, which payoff will you choose? c. At what investment rate will the annuity stream of $160,000 be the same as the lump-sum payment of $1,452,326?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 22P

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Question

Lomery Your dreams of becoming rich have just come true. You have won the State of Tranquility's Lottery. The
State offers you two payment plans for the $4,000,000 advertised jackpot. You can take annual payments of
$160,000 at the end of the year for the next 25 years or $1,452,326 today
a. If your investment rate over the next 25 years is 12%, which payoff will you choose?
b. If your investment rate over the next 25 years is 8%, which payoff will you choose?
c. At what investment rate will the annuity stream of $160,000 be the same as the lump-sum payment of $1,452,3267
a. If your investment rate over the next 25 years is 12%, what is the present value of the $160,000 annual
payments today?
(Round to the nearest dollar)

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