6. An athlete signs a five-year endorsement deal with a prominent sponsor. Under this deal, the athlete will receive $5,500 each year for the first three years and $7,000 each year for the final two years. What is the present value of the total deal if the payments are discounted 6%?

8. What is the difference between $10,000 invested for ten years at 4% per year, compounded annually, and at 7% per year, compounded semi-annually?

Suppose that you win a lottery prize and are given a choice. You may choose to receive either (1) payments of $75,000 per year for the next 25 years, or (2) a single payment of $1,000,000 today. The interest (discount) rate is 6%.

9. What is the present value of option (1)?

10. Which option is the best choice?

Select one:

a. Option (2) because it has the higher present value

b. Option (2) because $1,000,000 > $75,000

c. Option (1) because $1,875,000 > $1,000,000

d. Option (1) because it has the higher present value

Suppose you saving to take a trip to Cuba 30 months from now. To pay for the trip, you will either (a) put $2,500 in an account that pays 6% annual interest, or (b) save $100 each month (in the same account that returns 6% per year). Assume monthly compounding in both cases.

11. How much will you have for your trip if you choose option (a)?

12. How much will you have for your trip if you choose option (b)?