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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?

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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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)
Transcribed Image Text: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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