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You recently won a lottery and have the option of receiving one of the following three prizes: (1) $98,000 cash immediately, (2) $40,000 cash immediately and a six-year annual annuity of $9,900 beginning one year from today, or (3) a six-year annual annuity of $19,800 beginning one year from today. Assuming an interest rate of 6% compounded annually, determine the present value for the above options. Which option should you choose?

You recently won a lottery and have the option of receiving one of the following three prizes: (1) $98,000 cash immediately, (2) $40,000 cash immediately and a six-year annual annuity of $9,900 beginning one year from today, or (3) a six-year annual annuity of $19,800 beginning one year from today. Assuming an interest rate of 6% compounded annually, determine the present value for the above options. Which option should you choose?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Answer each of the following independent questions. 1. You recently won a lottery and have the option of receiving one of the following three prizes: (1) $98,000 cash immediately, (2) $40,000 cash immediately and a six-year annual annuity of $9,900 beginning one year from today, or (3) a six-year annual annuity of $19,800 beginning one year from today. Assuming an interest rate of 6% compounded annually, determine the present value for the above options. Which option should you choose? 2. A company wants to accumulate a sum of money to repay certain debts due in the future. The company will make annual deposits of $200,000 into a special bank account at the end of each of 10 years. Assuming the bank account pays 6% interest compounded annually, what will be the fund balance after the last payment is made in ten years? Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Complete this question by entering your answers in the tabs below. Required 1 Required 2 You recently won a lottery and have the option of receiving one of the following three prizes: (1) $98,000 cash immediately, (2) $40,000 cash immediately and a six-year annual annuity of $9,900 beginning one year from today, or (3) a six-year annual annuity of $19,800 beginning one year from today. Assuming an interest rate of 6% compounded annually, determine the present value for the above options. Which option should you choose? Note: Round your final answers to nearest whole dollar amount. Annuity Payment PV Annuity + Option 1 Option 2 Option 3 Which option should you choose? Required 1 Required 2 Table, Excel, or calculator function: Payment: Future value: + n = + < Required 1 Immediate Cash = < Required 1 = = A company wants to accumulate a sum of money to repay certain debts due in the future. The company will make annual deposits of $200,000 into a special bank account at the end of each of 10 years. Assuming the bank account pays 6% interest compounded annually, what will be the fund balance after the last payment is made in ten years? Note: Round your final answers to nearest whole dollar amount. PV Option Required 2 > Show less Required 2 > Show less A
Transcribed Image Text:Answer each of the following independent questions. 1. You recently won a lottery and have the option of receiving one of the following three prizes: (1) $98,000 cash immediately, (2) $40,000 cash immediately and a six-year annual annuity of $9,900 beginning one year from today, or (3) a six-year annual annuity of $19,800 beginning one year from today. Assuming an interest rate of 6% compounded annually, determine the present value for the above options. Which option should you choose? 2. A company wants to accumulate a sum of money to repay certain debts due in the future. The company will make annual deposits of $200,000 into a special bank account at the end of each of 10 years. Assuming the bank account pays 6% interest compounded annually, what will be the fund balance after the last payment is made in ten years? Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Complete this question by entering your answers in the tabs below. Required 1 Required 2 You recently won a lottery and have the option of receiving one of the following three prizes: (1) $98,000 cash immediately, (2) $40,000 cash immediately and a six-year annual annuity of $9,900 beginning one year from today, or (3) a six-year annual annuity of $19,800 beginning one year from today. Assuming an interest rate of 6% compounded annually, determine the present value for the above options. Which option should you choose? Note: Round your final answers to nearest whole dollar amount. Annuity Payment PV Annuity + Option 1 Option 2 Option 3 Which option should you choose? Required 1 Required 2 Table, Excel, or calculator function: Payment: Future value: + n = + < Required 1 Immediate Cash = < Required 1 = = A company wants to accumulate a sum of money to repay certain debts due in the future. The company will make annual deposits of $200,000 into a special bank account at the end of each of 10 years. Assuming the bank account pays 6% interest compounded annually, what will be the fund balance after the last payment is made in ten years? Note: Round your final answers to nearest whole dollar amount. PV Option Required 2 > Show less Required 2 > Show less A
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