Answer each of the following independent questions.

alex meir recently won a lottery and has the option of receiving one of the following three prizes:

(1) $86,000 cash immediately
(2) $32,000 cash immediately and a six-period annuity of $9,200 beginning one year from today
(3) a six-period annuity of $17,400 beginning one year from today.

(fv of $1, pv of $1, fva of $1, pva of $1, fvad of $1 and pvad of $1) (use appropriate factor(s) from the tables provided.)

1-a. assuming an interest rate of 6%, determine the pv value for the above options.
1-b. which option should alex choose? option (1) option (2) option (3)

2. the weimer corporation wants to accumulate a sum of money to repay certain debts due on december 31, 2025. weimer will make annual deposits of $170,000 into a special bank account at the end of each of 10 years beginning december 31, 2016.

assuming that the bank account pays 7% interest compounded annually, what will be the fund balance after the last payment is made on december 31, 2025?

Instructions are listed below.

Explanation:

Giving the following information:

Alex Meir recently won a lottery and has the option of receiving one of the following three prizes:

(1) $86,000 cash immediately

(2) $32,000 cash immediately and a six-period annuity of $9,200 beginning one year from today

(3) a six-period annuity of $17,400 beginning one year from today.

1)

A) i= 0.06

i) PV= 86,000

ii) First, we need to calculate the final value of the annuity:

FV= {A*[(1+i)^n-1]}/i

A= annual pay

FV= {9,200*[(1.06^6)-1]}/0.06 + [(9,200*1.06^6)-9,200]= 68,023.31

PV= FV/(1+i)^n= 68,023.31/1.06^6= 47,953.75 + 32,000= $79,953.75

ii) FV= {17,400*[(1.06^6)-1]}/0.06 + [(17,400*1.06^6)-17,400]= 128,652.77

PV= 128,652.77/1.06^6= $90,695.13

B) The option with the higher present value is option 3. Therefore, it is the best option.

2) Weimer will make annual deposits of $170,000 into a special bank account at the end of each of 10 years beginning December 31, 2016.

Assuming that the bank account pays 7% interest compounded annually.

FV= {A*[(1+i)^n-1]}/i

FV= {170,000*[(1.07^10)-1]}/0.07

FV= $2,348,796.15

reducing the scale of the market for a new product.