Question
3. Which is the less expensive option for buying a boat, paying $12,500/year at the end of the next five years, or paying $6,250/year at
3. Which is the less expensive option for buying a boat, paying $12,500/year at the end of the next five years, or paying $6,250/year at the end of the next ten years? Use an interest rate of 3.25%
4. You just won $4,200,000 at a casino slot machine. The owners congratulate you and ask you to sign a contract where they pay you the $4,200,000 in an immediate payment today of $200,000 plus 20 equal installments of $200,000 paid at the end of each of the next 12 months (i.e. in 12 months you get a cheque, 12 months later you get another cheque, and on until 20 years is over).
Use an interest rate of 3.25%.
a. What is the cash value of their offer today?
b. What do you need to get for equal payments for the total amount over the time period to be worth $4,200,000?
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