You were given a $3,000,000 lump-sum award today. A financial company ABC gives you the following offer: "Give us your $3,000,000 and we will pay you a fixed amount of $230,000 every year for the next 20 years. The first payment will come one year from today, the last payment will come 20 years from today. This is a great deal because during the life of the contract, we will pay you 20 x $230,000 = $4,600,000!"

You were already thinking about investing the award, and you believe you should be generating at least 5% return (per year) for any investment similar (in terms of risk) to the one company ABC is offering. Should you accept their offer?

Hint: Your answer has to be number-driven and based on values provided above and should be centered on what you learned about valuation of sequences of cash flows. No "feelings", "intuitions", "experiences" etc.

Answer rating: 100% (QA)

To determine if we should accept the financial company ABCs offer we need to compare the present val... View the full answer