Question

After hearing a knock at your front the good news that you are the big winner, having won $31 million. You have three options. door r, you are surprised to see the Prize Patrol from a large, well-known magazine subscription company. It has arrived with (a) Receive $1.55 million per year for the next 20 years. (b) Have $10.75 million today. (c) Have $2.5 million today and receive $1,250,000 for each of the next 20 years Your financial adviser tells you that it is reasonable to expect to earn 14 percent on investments. Required 1. Calculate the present value of each option. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Enter your answers in dollars, not in millions.) Present Value Option A Option B Option C 2. Determine which option you prefer O Option C O Option A Option B

Answer 1

1.

	Present value
Option A	$1.55 × 6.623 = $10.27 million
Option B	$10.75 million
Option C	$2. 5 + $1.25 × 6.623 = $10.78 million

2. Options C