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"You can choose one of the following prizes. Assume that all

"You can choose one of the following prizes. Assume that all amounts are payed monthly. If the interest rate is 12%, which prize do you claim?"

(a) $100,000 now 

(b) $180,000 at the end of 5 years.

(c) $11,400 a year forever

(d) $19,000 for each of 10 years


(b) used the equation PV = FV/[1/(k/m)^(mT)] (PV = $99,080.93)

(c) used the equation PV = (c/m)/(k/m) (PV = $95,000)

(d) used the equation PV = (c/m)[1/(k/m) - 1/[(k/m)(1+(k/m)^(mT)]] (the annuity formula) (PV = $110,359)

So basically it made me calculate the present value of various payments. I know how to do that. 


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