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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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