Question

Present values: As winner of a breakfast cereal competition, you can choose one of the following prizes: a. $15,000 now. b. $25,000 at the end of 5 years. c. $1,250 a year forever. d. $2,500 for each of 10 years. e. $900 next year and increasing thereafter by 2% a year forever. If the interest rate is 7.5%, which is the most valuable prize?

Answer 1