Class Problem 2 - Dr. Swanbom has just won $100,000,000 in the lottery and is about to resign his position at the university. Before he does, he needs some financial advice from his ENGR 122 students. Should he (1) take the $100,000,000 in the form of annual payments of $5,000,000 for the next 20 years, or (2) take $40,000,000 as a lump sum payment now? Assume that with both options he won't spend any of the money, but will instead invest all of it at 9% interest compounded yearly. Neglect the effect of taxes on both options.
Class Problem 2 - Dr. Swanbom has just won $100,000,000 in the lottery and is about to resign his position at the university. Before he does, he needs some financial advice from his ENGR 122 students. Should he (1) take the $100,000,000 in the form of annual payments of $5,000,000 for the next 20 years, or (2) take $40,000,000 as a lump sum payment now? Assume that with both options he won't spend any of the money, but will instead invest all of it at 9% interest compounded yearly. Neglect the effect of taxes on both options.
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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Transcribed Image Text:Class Problem 2 - Dr. Swanbom has just won $100,000,000 in the lottery and is about to resign
his position at the university. Before he does, he needs some financial advice from his ENGR 122
students. Should he (1) take the $100,000,000 in the form of annual payments of $5,000,000 for
the next 20 years, or (2) take $40,000,000 as a lump sum payment now? Assume that with both
options he won't spend any of the money, but will instead invest all of it at 9% interest
compounded yearly. Neglect the effect of taxes on both options.
option 1: F = $255.8 million
option 2: F = $224.2 million
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