It's my money and I want it now! The key to solving problems dealing with receiving...
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"It's my money and I want it now!" The key to solving problems dealing with receiving a lump sum payment or an annuity is an understanding of the concept commonly referred to as the time value of money. 1. You won the lottery for $300 million dollars! You can take a lump sum amount today in the amount of $92,495,600 (ignore income taxes). Or you can receive an annual payment amount (annuity) for the next 30 years. Use the present and future value tables in your book, a financial calculator, or Excel determine the amount of the annual payment based upon a discount rate of 4%. Which option would you choose and why? 2. Think about one of your financial goals; a purchase you would like to make within the next five years. o Identify the item you want to purchase. o What is the cost of the item? o Indicate the length of time you want to finance the item and the interest rate. o Based upon these factors what would be the amount of your monthly payment? "It's my money and I want it now!" The key to solving problems dealing with receiving a lump sum payment or an annuity is an understanding of the concept commonly referred to as the time value of money. 1. You won the lottery for $300 million dollars! You can take a lump sum amount today in the amount of $92,495,600 (ignore income taxes). Or you can receive an annual payment amount (annuity) for the next 30 years. Use the present and future value tables in your book, a financial calculator, or Excel determine the amount of the annual payment based upon a discount rate of 4%. Which option would you choose and why? 2. Think about one of your financial goals; a purchase you would like to make within the next five years. o Identify the item you want to purchase. o What is the cost of the item? o Indicate the length of time you want to finance the item and the interest rate. o Based upon these factors what would be the amount of your monthly payment?
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