Assume that you just won the state lottery. Your prize can be taken either in the form of $40,000 at the end of each of the next 25 years (that is, $1,000,000 over 25 years) or as a single amount of $500,000 paid immediately. i. If you expect to be able to earn 4% annually on your investments over the next 25 years, ignoring taxes and other considerations, which alternative should you take? Why? ii. Would your decision in part (i) change if you could earn 7% rather than 4% on your investments over the next 25 years? Why?
Assume that you just won the state lottery. Your prize can be taken either in the form of $40,000 at the end of each of the next 25 years (that is, $1,000,000 over 25 years) or as a single amount of $500,000 paid immediately. i. If you expect to be able to earn 4% annually on your investments over the next 25 years, ignoring taxes and other considerations, which alternative should you take? Why? ii. Would your decision in part (i) change if you could earn 7% rather than 4% on your investments over the next 25 years? Why?
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
Problem 1PS
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Assume that you just won the state lottery. Your prize can be taken either in the form of
$40,000 at the end of each of the next 25 years (that is, $1,000,000 over 25 years) or as a
single amount of $500,000 paid immediately.
i. If you expect to be able to earn 4% annually on your investments over the next 25
years, ignoring taxes and other considerations, which alternative should you take?
Why?
ii. Would your decision in part (i) change if you could earn 7% rather than 4% on your
investments over the next 25 years? Why?
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