A man inherited a regular endowment of P100,000 every end of 3 months for 10 years....
A man inherited a regular endowment of P100,000 every end of 3 months for 10 years. However, he may choose to get a single lump sum payment at the end of 4 years. How much is the lump sum if money is worth 14% compounded quarterly?
a. P3,702,939
b. P3,602,431
c. P3,802,862
d. P3,502,546
Homework Answers
FV of Annuity = Periodic Payment * [{(1 + r)n - 1} / r]
= P100,000 * [{(1 + 0.14/4)(10*4) - 1} / (0.14/4)]
= P100,000 * [0.4233 / 0.035]
= P100,000 * 84.5503
= P8,455,027.78
Value at the end of 4 years = FV of Annuity / (1 + r)n
= P8,455,027.78 / [1 + (0.14/4)](6*4)
= P8,455,027.78 / [1.035]24
= P8,455,027.78 / 2.2833
= P3,702,939.73
Hence, Option "a" is correct.
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