ABC Investment Management offered Tommy Krklinski two investment plans. Plan X is an annuity, which will make
Question:
ABC Investment Management offered Tommy Krklinski two investment plans. Plan X is an annuity, which will make 10 payments of $10,000 every quarter starting 2 years from today. Plan Y is a perpetuity, which will pay $5,000 every quarter forever starting 2 years from today. At what annual rate of return would Tommy be indifferent between these two plans?
b. Lisa Tran has just won WCH Helping Hands Lottery jackpot. She has the following options available to receive her prize.
1. $900,000 cash now.
2. 100 payments of $20,000 per quarter starting 1 year from today.
3. 40 payments of $43,000 every 6 months starting 3 months from today.
Suppose the discount rate is 6% per year compounded monthly.
Which one is the best option?
Fundamentals of Corporate Finance
ISBN: 978-1260153590
12th edition
Authors: Stephen M. Ross, Randolph W Westerfield, Robert R. Dockson, Bradford D Jordan