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John won the lottery; however, the lottery company gave him the following two options to receive his prize money: Option (a): $11,000 in three months
John won the lottery; however, the lottery company gave him the following two options to receive his prize money: Option (a): $11,000 in three months and $15,000 in eleven months. Option (b): $7,000 immediately and $20,000 in fourteen months. Assume that money earns 4.75% p.a. simple interest and use today as the focal date. a. What was the equivatent value of the payments under option (a) at the focal date? Round to the nearest cent b. What was the equivalent value of the payments under option (b) at the focal date? c. Which option would be economically better for John and by how much? a. Option (a) b. Option (b) is better by Round to the nearest cent
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