Suppose that Deborah just won the lottery and must choose between three award options: 1. A...
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Suppose that Deborah just won the lottery and must choose between three award options: 1. A lump sum of $40,000,000 received today 2. 15 end-of-year payments of $5,000,000 3. 40 end-of-year payments of $3,600,000 Assume the interest rate is 8.00%, entered as 8 on your financial calculator. Note: Take the absolute value of the present value when answering this question. Using a financial calculator yields a present value for option 2 of approximately and a present value for option 3 of approximately (when the interest rate is 8.00%), Based on this, Deborah should choose option if she seeks to maximize present value. Now assume the interest rate is 9.00%, entered as 9 on your financial calculator. Note: Take the absolute value of the present value when answering this question. Using the table you just filled out and a financial calculator, yields a present value for option 2 of approximately and a present value for option 3 of approximately (when the interest rate is 9.00%). Based on this, Deborah should choose option if she seeks to maximize present value. Assume the interest rate is 10.00%, entered as 10 on your financial calculator. Note: Take the absolute value of the present value when answering this question. Using the table you just filled out and a financial calculator, yields a present value for option 2 of approximately and a present value for option 3 of approximately (when the interest rate is 10.00%). Based on this, Deborah should choose option if she seeks to maximize present value. As the interest rate increases, options 2 and 3 become attractive, relative to option 1. Suppose that Deborah just won the lottery and must choose between three award options: 1. A lump sum of $40,000,000 received today 2. 15 end-of-year payments of $5,000,000 3. 40 end-of-year payments of $3,600,000 Assume the interest rate is 8.00%, entered as 8 on your financial calculator. Note: Take the absolute value of the present value when answering this question. Using a financial calculator yields a present value for option 2 of approximately and a present value for option 3 of approximately (when the interest rate is 8.00%), Based on this, Deborah should choose option if she seeks to maximize present value. Now assume the interest rate is 9.00%, entered as 9 on your financial calculator. Note: Take the absolute value of the present value when answering this question. Using the table you just filled out and a financial calculator, yields a present value for option 2 of approximately and a present value for option 3 of approximately (when the interest rate is 9.00%). Based on this, Deborah should choose option if she seeks to maximize present value. Assume the interest rate is 10.00%, entered as 10 on your financial calculator. Note: Take the absolute value of the present value when answering this question. Using the table you just filled out and a financial calculator, yields a present value for option 2 of approximately and a present value for option 3 of approximately (when the interest rate is 10.00%). Based on this, Deborah should choose option if she seeks to maximize present value. As the interest rate increases, options 2 and 3 become attractive, relative to option 1.
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Assume Interest rate 8 Option 1 Present value 40000000 Option 2 Present value Annual X PV of annuity ... View the full answer
Related Book For
Fundamentals of Financial Management
ISBN: 978-0324664553
Concise 6th Edition
Authors: Eugene F. Brigham, Joel F. Houston
Posted Date:
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