Question: You have just won 50 million in a lottery and
You have just won $50 million in a lottery and are offered two options: receive $40 million today or receive $5 million per year for the next 10 years. At what interest rate are you indifferent to the choice between the two options? If the interest rate is greater than the indifference rate, which do you prefer and why? If the interest rate is less than the indifference rate, which do you prefer and why?
Answer to relevant QuestionsTwo friends, Abe and Betty, are planning for their retirement. Both are 20 years old and plan on retiring in 30 years with $1 million each. Betty plans on making annual deposits beginning in one year (total of 30 deposits) ...A bank is currently offering a savings account paying an interest rate of 8 percent compounded quarterly. It would like to offer another account, with the same effective annual rate, but compounded monthly. What is the ...Felix will need $10,000 per year for four years to pay for tuition. How much will Felix’s parents have to invest at the end of each year for the eight years before he begins his studies if their savings earn compound ...After losing money playing online poker, Scott visits a loan shark for a $750 loan. To avoid a visit from the “collection agency,” he will have to repay $800 in just one week.a. What is the nominal interest rate per ...Alysha has decided to use her $50,000 in savings to make a down payment on a house. She will live in the house for the next two years while still at university and then sell it when she graduates. The bank has offered her a ...
Post your question