You have won $1755000 in the lottery. You have two options. Option one is to take a lump sum of $1421550. Option two is to receive the entire amount of your winnings in 360 monthly instalments of $4875. 

 

Suppose you take option 1 and deposit the lump sum of $1421550 in an account that pays an APR of 5% compounded monthly. The account balance after 30 years is?

 

Suppose you take option 2 and deposit your instalments of $4875 into an account with the same terms. Find the account balance after 360 monthly deposits. The account balance after 30 years is?

 

How much do you gain by taking?

 

Questions:

A mutual fund pays 10% compounded monthly. How much should I invest now so that 4 years from now I will have $3100 in the account?

Answer rating: 100% (QA)

Lets calculate the account balances for both options and then compare the total gains Option 1 Lump ... View the full answer