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

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(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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This question was answered on: Feb 21, 2020

Solution~00066487482.zip (18.37 KB)