Luis won the lottery; however, the lottery company gave him the following two options to receive his prize money: Option (a): $8,000 in two months and $18,000 in eleven months. Option (b): $4,000 immediately and $24,000 in fourteen months. Assume that money earns 4.5% p.a. simple interest and use today as the focal date. a. What was the equivalent value of the payments under option (a) at the focal date? $0.00 Round to the nearest cent b. What was the equivalent value of the payments under option (b) at the focal date? $0.00 Round to the nearest cent c. Which option would be economically better for Luis and by how much? o a. Option (a) o b. Option (b) is better by $0.00 Round to the nearest cent

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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Luis won the lottery; however, the lottery company gave him the following two options
to receive his prize money:
Option (a): $8,000 in two months and $18,000 in eleven months.
Option (b): $4,000 immediately and $24,000 in fourteen months.
Assume that money earns 4.5% p.a. simple interest and use today as the focal date.
a. What was the equivalent value of the payments under option (a) at the focal date?
$0.00
Round to the nearest cent
b. What was the equivalent value of the payments under option (b) at the focal date?
$0.00
Round to the nearest cent
c. Which option would be economically better for Luis and by how much?
O a. Option (a)
o b. Option (b)
is better by
$0.00
Round to the nearest cent
Transcribed Image Text:Luis won the lottery; however, the lottery company gave him the following two options to receive his prize money: Option (a): $8,000 in two months and $18,000 in eleven months. Option (b): $4,000 immediately and $24,000 in fourteen months. Assume that money earns 4.5% p.a. simple interest and use today as the focal date. a. What was the equivalent value of the payments under option (a) at the focal date? $0.00 Round to the nearest cent b. What was the equivalent value of the payments under option (b) at the focal date? $0.00 Round to the nearest cent c. Which option would be economically better for Luis and by how much? O a. Option (a) o b. Option (b) is better by $0.00 Round to the nearest cent
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