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 she can earn 7% annually, which should she choose? b. If she expects to earn 8% annually, which is the best choice?

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 she can earn 7% annually, which should she choose? b. If she expects to earn 8% annually, which is the best choice?

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

See similar textbooks

Similar questions

Funding a retirement goal. Austin Miller wishes to have 800,000 in a retirement fund 20 years from now. He can create the retirement fund by making a single lump-sum deposit today. a. If upon retirement in 20 years, Austin plans to invest 800,000 in a fund that earns 4 percent, what is the maximum annual withdrawal he can make over the following 15 years? b. How much would Austin need to have on deposit at retirement in order to withdraw 35,000 annually over the 15 years if the retirement fund earns 4 percent? c. To achieve his annual withdrawal goal of 35,000 calculated in part b, how much more than the amount calculated in part a must Austin deposit today in an investment earning 4 percent annual interest?
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 she can earn 7% annually, which should she choose? b. If she expects to earn 8% annually, which is the best choice?
Problem 9: : Value of an Annuity vs. a Single Amount Raymund just won the lottery. He can get his prize either in the form of $40,000 at the end of each of the next 25 years (that is, $1,000,000 over 25 years) or as a single amount of $500,000 paid immediately. If he expects to be able to earn 5% annually on his investments over the next 25 years, ignoring taxes and other considerations, which alternative should he take? Why? Would his decision in part a change if he could earn 7% rather than 5% on his investments over the next 25 years? Why?
5-36. (Compounding using a calculator and annuities due) Carsten Bo, the DanisaTraditional Butter Cookies mogul, wants to retire at age 100. Mr. Boe is currently 70.Once he retires, he wants to withdraw $1.1 billion at the beginning of each year for12 years from a special offshore account that will pay 15 percent annually. In orderto fund his retirement, Mr. Boe will make 30 equal end-of-year deposits in the samespecial account that will pay 15 percent annually. How much money will Mr. Boeneed at age 100, and how large an annual deposit must he make to fund this retire-ment account?
solve parts C and D a) Barney Rubble expects to retire in 10 years and would like to accumulate £100,000 in his pension fund. If the annual interest rate is 6% (Annual Percentage Rate), how much should Barney put into his pension fund each month in order to achieve his goal? (Assume that Barney will deposit the same amount each month.) b) As winner of a lottery, you can choose one of the following prizes: (i) £100,000 now (ii) £180,000 at the end of 5 years (iii) £12,000 every year forever If the interest rate is 12%, which prize is the most valuable? c)You decide to pay on your bank account £1,000 every year for the next 10 years, starting today (total of 10 annual payments of £1,000). Five years after the last payment, you decide to withdraw £1,000 every year for 10 years. If the annual interest rate is 5%, how much money do you have left on your bank account right after the last withdrawal? c) You decide to pay on your bank account £1,000 every year for the next…
Problem 7-21 Auntie Kitty sells her home for $200,000, which is then invested to earn 4 percent annually. If her life expectancy is ten years, what is the maximum amount she can annually spend on a nursing home, doctors, and taxes? Use Appendix D to answer the question. Round your answer to the nearest dollar.The maximum amount that can be annually spend is $ . If the return were to double to 8 percent, will the amount she may spend each year more than double? Use Appendix D to answer the question. Round your answer to the nearest dollar.If the return were to double, the amount that can be annually spend will -Select-more than doubleless than doubledoubleItem 2 and will be equal to $ .