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sweet [91]
3 years ago
13

Suppose you win the lottery and have two options: A. Take $1 million now. B. Take $1.2 million to be paid out as 300,000 now and

then $300,000 a year for 3 years. Which is the better deal? Assume that the interest rate is 10%. Please show your work. (4 point)
Business
1 answer:
laila [671]3 years ago
4 0

Answer:

A. Take $1 million now.

Explanation:

A. If we take $1 million now the present value of the money is $1 million.

B. If we choose to take $1.2 million paid out over 3 years then present value will at 10% will be;

$300,000 + $300,000 / 1.2 + $300,000/ 1.44 + $300,000 / 1.728

$300,000 + $250,000 + $208,000+ $173,611 = $931,944

The present value of option B is less than present value of option A. We should select option A and take $1 million now.

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You plan to borrow $40,000 at a 6% annual interest rate. The terms require you to amortize the loan with 7 equal end-of-year pay
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Interest for second year $2,114.08

Explanation:

given data

loan Amount = $40,000.00  

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time period t = 7  

solution

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