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6. A lottery offers two options for the prize. Option A: $1000 a week for life Option B: $ 600 000 in one lump sum. The current...Asked by stephy
6. A lottery offers two options for the prize.
Option A: $1000 a week for life
Option B: $ 600 000 in one lump sum.
The current expected rate of return for large investment is 7%/a, compounded weekly.
a. Which option would the winner choose if s/he expects to live for another 25 years?
Option A: $1000 a week for life
Option B: $ 600 000 in one lump sum.
The current expected rate of return for large investment is 7%/a, compounded weekly.
a. Which option would the winner choose if s/he expects to live for another 25 years?
Answers
Answered by
Reiny
so you need to find the Present Value of $1000 per week for 25 years.
i = .07/52 = .001346153
n = 25(52) = 1300
evaluate
1000( 1 - 1.001346153^-1300)/.001346153
and compare to $600 000
i = .07/52 = .001346153
n = 25(52) = 1300
evaluate
1000( 1 - 1.001346153^-1300)/.001346153
and compare to $600 000
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