Exercise 5-15 (Algo) Future and present value [LO5-3, 5-7, 5-8]

Answer each of the following independent questions.

You recently won a lottery and have the option of receiving one of the following three prizes: (1) $86,000 cash immediately, (2) $32,000 cash immediately and a six-year annual annuity of $9,200 beginning one year from today, or (3) a six-year annual annuity of $17,400 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?

A company wants to accumulate a sum of money to repay certain debts due in the future. The company will make annual deposits of $170,000 into a special bank account at the end of each of 10 years. Assuming the bank account pays 7% 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)

You recently won a lottery and have the option of receiving one of the following three prizes: (1) $86,000 cash immediately, (2) $32,000 cash immediately and a six-year annual annuity of $9,200 beginning one year from today, or (3) a six-year annual annuity of $17,400 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.

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	Annuity Payment	PV Annuity	+	Immediate Cash	=	PV Option
Option 1			+		=
Option 2			+		=
Option 3			+		=
Which option should you choose?

A company wants to accumulate a sum of money to repay certain debts due in the future. The company will make annual deposits of $170,000 into a special bank account at the end of each of 10 years. Assuming the bank account pays 7% 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.

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Table, Excel, or calculator function:
Payment:
n =
i =
Future value: