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LO3: Use the time value of money to compute the present and future values of single lump sums and annuities Time value of money: Do
LO3: Use the time value of money to compute the present and future values of single lump sums and annuities Time value of money: Do you want to get $100 now or get it next year?- Time Present value Future value Present 5 years $10,000 $13,380 Calculating Present Values of Single Sums and Annuities Using PV Factors: using Discounted cash flows For our example, let's assume that you've just won the lottery after purchasing one $5 lottery icket. The state offers you three payout options for your after-tax prize money (assuming the nterest rate = 8%): Option #1: $1,000,000 now Option #2: $150,000 at the end of each year for the next 10 years Option #3: $2,000,000 10 years from now $150,000 a year for 10 years? $1 million now? 000 $2 million 10 years from now? L
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