Now it's time for you to practice what you've learned. Suppose that Eleanor just won the lottery and must choose between three award options: 1. A lump sum of $35,000,000 received today 2. 15 end-of-year payments of $4,375,000 3. 40 end-of-year payments of $3,150,000 Assume the interest rate is 8.00%, entered as 8 on your financial calculator. Note: Take the absolute value of the present value when answering this question. Using a financial calculator yields a present value for option 2 of approximately and a present value for option 3 of approximately (when the interest rate is 8.00% ). Based on this, Eleanor should choose option if she seeks to maximize present value. Now assume the interest rate is 9.00%, entered as 9 on your financial calculator. Note: Take the absolute value of the present value when answering this question. Using the table you just filled out and a financial calculator, yields a present value for option 2 of approximately and a present value for option 3 of approximately (when the interest rate is 9.00% ). Based on this, Eleanor should choose option if she seeks to maximize present value. Assume the interest rate is 10.00%, entered as 10 on your financial calculator. Note: Take the absolute value of the present value when answering this question. Using a financial calculator yields a present value for option 2 of approximately and a present value for option 3 of approximately (when the interest rate is 8.00% ). Based on this, Eleanor should choose option if she seeks to maximize present value. Now assume the interest rate is 9.00%, entered as 9 on your financial calculator. Note: Take the absolute value of the present value when answering this question. Using the table you just filled out and a financial calculator, yields a present value for option 2 of approximately and a present value for option 3 of approximately (when the interest rate is 9.00% ). Based on this, Eleanor should choose option if she seeks to maximize present value. Assume the interest rate is 10.00%, entered as 10 on your financial calculator. Note: Take the absolute value of the present value when answering this question. Using the table you just filled out and a financial calculator, yields a present value for option 2 of approximately and a present value for option 3 of approximately (when the interest rate is 10.00% ). Based on this, Eleanor should choose option if she seeks to maximize present value. As the interest rate increases, options 2 and 3 become attractive, relative to option 1
