Congratulations! You have just won your local sweepstakes and you need to decide between two options for payout. You can either take the $50,000 in one lump sum or receive two installments at $25,000 each. The best interest rate available for the $50,000 is 4.75% per year compounded monthly, while for the two installments, the rate on the first $25,000 will be 5% per year and on the second installment (to be received one year later) will be 5% per year compounded quarterly. Which option will give you the most money after 10 years? Use the compound interest formula:

Congratulations! You have just won your local sweepstakes and you need to decide between two options for payout. You can either take the $50,000 in one lump sum or receive two installments at $25,000 each. The best interest rate available for the $50,000 is 4.75% per year compounded monthly, while for the two installments, the rate on the first $25,000 will be 5% per year and on the second installment (to be received one year later) will be 5% per year compounded quarterly. Which option will give you the most money after 10 years? Use the compound interest formula:

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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