You just received an insurance settlement offer related to an accident you had three years ago. The offer provides you with three choices: • Option A: $1,500 a month for 6 years • Option B: $1,025 a month for 10 years • Option C: $85,000 as a lump sum payment payable today You can earn 7.5 percent on your investments and do not care if you personally receive the funds or if they are paid to your heirs should you die within the settlement period. Which option should you select and why is that option justified?

You just received an insurance settlement offer related to an accident you had three years ago. The offer provides you with three choices: • Option A: $1,500 a month for 6 years • Option B: $1,025 a month for 10 years • Option C: $85,000 as a lump sum payment payable today You can earn 7.5 percent on your investments and do not care if you personally receive the funds or if they are paid to your heirs should you die within the settlement period. Which option should you select and why is that option justified?

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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Similar questions

It is with deep regret that I inform you that your rich uncle just passed away. His money is tied up in an investment. However, we can sell the investment and give you $15,000 today, or you will receive $20,000 in 5 years when the investment matures. Which would you choose? Use March 2023’s inflation rate (5%)
Your rich uncle dies, leaving you a life insurance policy worth $120,000. The insurance company also offers you an option to receive $8, 225 per year for 25 years, with the first payment due today. You should choose the immediate payout if the interest rate is greater than a. 5.27% b. 5.76% c. 7.75% d. 4.66%
10) Vanessa wants to withdraw $8,000 each year from July 1, 2025 through July 1, 2029. The investment fund earns interest at a rate of 5%. In order to make these withdrawals, Vanessa will invest an annuity on July 1, 2021 through July 1, 2024. Calculate the annuity Vanessa needs to invest each year. Yellow Company purchases a truck on January 1, 2021. According to the contract Yellow will not make any payments in 2021, 2022 and 2023. Yellow is to make an annuity payment of $5,000 starting December 31, 2024 through December 31, 2028. Calculate the cost of the truck. 11) Stella has $3,000,000 in her investment fund. She wishes to withdraw $338,868 12) at the end of each of the next 13 years. What interest rate must she earn in order to accomplish her goal. A note receivable that is due in 15 months from now is always classified as a 13) long-term asset. (True/False) 14) A long-term note receivable should be disclosed in Other Assets in a classified balance sheet. (True/False)
Timothy is retiring from his job soon at which time his employer will make the following offer: 1. A lumpsum amount of $200,0002. A sum of $15,000 at the beginning of each year for the next 25 years. If the average interest rate is likely to be 5.5% p.a. for the next 25 years, which option should Timothy choose?
Assume you are 25 and earn $29 comma 00029,000 per year, never expect to receive a raise, and plan to retire at age 55. If you invest 5 percent of your salary in a 401(k) plan returning 1111 percent annually, and the company provides a $0.50 per $1.00 match on your contributions up to 3 percent of salary, what is the estimated future value of your 401(k) account? Once you retire, how much can you withdraw monthly if you want to deplete your account over 3030 years?
None
Jacob wishes to borrow $80,000 from his bank, J.P. Morgan, in order to expand his business. J. P. Morgan agrees to lend him the money over a 5-year term at an APR of 8% and will accept either annual, quarterly, or monthly payments with no change in the quoted APR. Calculate the periodic payment under each alternative and compare the total amount paid each year under each option. Which period should Jacob choose and why? Show your calculations using a formula.
As a settlement for an insurance claim, Craig was offered one of two choices. He could either accept a lump-sum amount of $11,235 now, or accept monthly payments of $140 for the next nine years. If the money is placed into a trust fund earning 7.64% compounded annually, which is the better option and by how much?
Your rich uncle dies, leaving you a life insurance policy worth $120,000. The insurance company also offers you an option to receive $8,225 per year for 25 years, with the first payment due today. You should choose the immediate payout if the interest rate is greater than a. 5.27% b. 5.76% C. 7.75% d. 4.66%

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