5-21 EVALUATING LUMP SUMS AND ANNUITIES. Kristina just won the lottery, and she must choose among three award options. She can elect to receive a lump sum today of $62 million, to receive 10 end- of-year payments of $9.5 million, or to receive 30 end-of year payments of $5.6 million. a. If she thinks that she can earn 7% annually, which should she choose? b. If she expects to earn 8% annually, which is the best choice? c. If she expects to earn 9% annually, which option would you recommend?
5-21 EVALUATING LUMP SUMS AND ANNUITIES. Kristina just won the lottery, and she must choose among three award options. She can elect to receive a lump sum today of $62 million, to receive 10 end- of-year payments of $9.5 million, or to receive 30 end-of year payments of $5.6 million. a. If she thinks that she can earn 7% annually, which should she choose? b. If she expects to earn 8% annually, which is the best choice? c. If she expects to earn 9% annually, which option would you recommend?
Financial Accounting: The Impact on Decision Makers
10th Edition
ISBN:9781305654174
Author:Gary A. Porter, Curtis L. Norton
Publisher:Gary A. Porter, Curtis L. Norton
Chapter9: Current Liabilities, Contingencies, And The Time Value Of Money
Section: Chapter Questions
Problem 9.20MCE
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Transcribed Image Text:5-21 EVALUATING LUMP SUMS AND ANNUITIES. Kristina just won the lottery, and she must choose
among three award options. She can elect to receive a lump sum today of $62 million, to receive 10 end-
of-year payments of $9.5 million, or to receive 30 end-of year payments of $5.6 million.
a. If she thinks that she can earn 7% annually, which should she choose?
b.
If she expects to earn 8% annually, which is the best choice?
C.
If she expects to earn 9% annually, which option would you recommend?
d. Explain how interest rates influence her choice.
6
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