In March 2014, Warren Buffett, one of the most successful investors and the CEO of Berkshire Hathaway Inc. offered $1 billion for the winner who has a perfect March madness Bracket. The winner has two choices:

A)  Receive 40 annual payments of 25 million each (assume beginning-of- the-year payments)

B)  Receive a lump sum payment today of $500 million immediately

a. Draw the time lines for the two choices.

b. Find the FV (at the end of year 40) of the two choices assuming interest rate is 3%? Which choice should the group select?

c.  Find the PV of the two choices assuming interest rate is 3%. Which choice should the group select?

d. Find the FV (at the end of year 40) for the two choices assuming interest is 9%. Which choice should the group select?

Find the PV of the two choices assuming interest rate is 9%. Which choice should the group select?