PLEASE SHOW ALL WORK AND DO NOT USE WEIRD FORMULAS - BE CLEAR AND CONCISE You ha

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PLEASE SHOW ALL WORK AND DO NOT USE WEIRD FORMULAS - BE CLEAR AND CONCISE

You have just won a lottery and you can choose between the following payout options. The annual interest rate (EAR) is 9%.

a. $100,000 right now and $50,000 every two years starting 3 years from now and ending 17 years from now (i.e. payments are at t = 0, t = 3, t = 5, … , t = 15, t = 17).

b. $50,000 a year for 25 years with the first payment one year from today (i.e. payments are at t = 1, 2, 3 … 24, 25).

c. 20 annual payments of $50,000 and a 21st payment of $300,000. The first payment is made right now, and the $300,000 payment is made one year after the last $50,000 payment.

How much more is the best option worth today relative to the worst option?

Explanation / Answer

B. In this situation total 24 payment received.

C.

Conculusion-- After looking above calculation we found that option B is most profitable.

No of year Amount Intrest ( A * t * r or No of year/100) Total 17 $100,000 $1,00,000*9%*17=$153,000 $2,53,000 16 15 $50,000 $50,000*9%*15=$67,500 $1,17,500 14 13 $50,000 $50,000*9%*13=$58,500 $1,08,500 12 11 $50,000 $50,000*9%*11=$49,500 $99,500 10 9 $50,000 $50,000*9%*9=$40,500 $90,500 8 7 $50,000 $50,000*9%*7=$31,500 $81,500 6 5 $50,000 $50,000*9%*5=$22,500 $72,500 4 3 $50,000 $50,000*9%*3=$13,500 $63,500 2 1 $50,000 $50,000*9%*1=$4,500 $54,500 Total $5,00,000 $4,41,000 $9,41,000

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