For hitting the half-court shot at the JSU vs MVSU girls\' game (in which Ayanna
ID: 2768649 • Letter: F
Question
For hitting the half-court shot at the JSU vs MVSU girls' game (in which Ayanna Lynn scored a career high 32 points and 11 assists), you get to choose between a $750 cash prize paid immediately or $90 per year for 10 years. You already have enough money for now so you decide on the 10 annual installments. However, you are considering the following two investment options: Save the winnings for the First 4 years and then spend every cent of the winnings in the remaining 6 years. You spend for the first 4 years then save the remaining 6 years. Draw the cash flow diagram for each option. Also, if Community Bank is advertising that they can give you a savings interest at 8% per year, how much would each option give you if you went home and did the calculations?Explanation / Answer
(1) Cash Flow without Bank interest
OPTION A Cash Inflows Spending per year ($) Balance after spending Year Amount received & previous balance 1y 2y 3y 4y 5y 6y 7y 8y 9y 10y Award ($) OB No interest CB (CB-$150) 1 90 0 90 90 2 90 90 0 180 180 3 90 180 0 270 270 4 90 270 0 360 360 5 90 360 0 360 60 300 6 90 300 0 300 60 240 7 90 240 0 240 60 180 8 90 180 0 180 60 120 9 90 120 0 120 60 60 10 90 60 0 60 60 0 OPTION B Cash In Flow Spending per year ($) Balance after spending Year Amount received & previous balance 1y 2y 3y 4y 5y 6y 7y 8y 9y 10y Award ($) OB ($) No ineterest CB (CB-$150) 1 90 90 90 0 2 90 90 90 0 3 90 90 90 0 4 90 90 90 0 5 90 90 90.00 6 90 90.00 0.00 180.00 180.00 7 90 180.00 0.00 270.00 270.00 8 90 270.00 0.00 360.00 360.00 9 90 360.00 0.00 450.00 450.00 10 90 450.00 0.00 540.00 540.00 (2) Cash Flows with bank interest OPTION A Cash Inflows Spending per year ($) Balance after spending Year Amount received & previous balance 1y 2y 3y 4y 5y 6y 7y 8y 9y 10y Award ($) OB Int. 8% on OB CB (CB-$150) 1 90 0 90 90 2 90 90.00 7.20 180 180 3 90 180.00 14.40 270 270 4 90 270.00 21.60 360 360 5 90 360.00 28.80 388.80 64.80 324 6 90 324.00 25.92 349.92 69.98 279.94 7 90 279.94 22.39 302.33 75.58 226.75 8 90 226.75 18.14 244.89 81.63 163.26 9 90 163.26 13.06 176.32 88.16 88.16 10 90 88.16 7.05 95.21 95.21 0 OPTION B Cash In Flow Spending per year ($) Balance after spending Year Amount received & previous balance 1y 2y 3y 4y 5y 6y 7y 8y 9y 10y Award ($) OB ($) Int. 8% on OB CB (CB-$150) 1 90 90 90 0 2 90 90 90 0 3 90 90 90 0 4 90 90 90 0 5 90 90 90.00 6 90 90.00 7.20 187.20 187.20 7 90 187.20 14.98 292.18 292.18 8 90 292.18 23.37 405.55 405.55 9 90 405.55 32.44 527.99 527.99 10 90 527.99 42.24 660.23 660.23Related Questions
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