Exercise 6-11 Future and present value [LO6-3, 6-6, 6-7]

Answer each of the following independent questions. Alex Meir recently won a lottery and has the option of receiving one of the following three prizes: (1) $66,000 cash immediately, (2) $22,000 cash immediately and a six-period annuity of $7,800 beginning one year from today, or (3) a six-period annuity of $13,000 beginning one year from today. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) 1. Assuming an interest rate of 5%, determine the present value for the above options. Which option should Alex choose? 2. The Weimer Corporation wants to accumulate a sum of money to repay certain debts due on December 31, 2027. Weimer will make annual deposits of $120,000 into a special bank account at the end of each of 10 years beginning December 31, 2018. Assuming that the bank account pays 6% interest compounded annually, what will be the fund balance after the last payment is made on December 31, 2027?