Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Out of nowhere, Alex get an email stating that he won a lottery that will give him a monthly payment of $3,000 for five years.

Out of nowhere, Alex get an email stating that he won a lottery that will give him a monthly payment of $3,000 for five years. Currently, the average rate of return on the bank deposits is 1 percent per month. There are two options that Alex can choose to disburse the prize, described as follow:

  • Option A : it will be paid on the last day of each month, or
  • Option B : it will be paid at the beginning of each month

If Alex wants to know the present value of his prize, which one of the following statements is incorrect concerning these two options?

Select one:

a. The present value of option A can be calculated using ordinary annuity

b. The present value of option A can be calculated using annuity due

c. Option A has a smaller present value than option B

d. Option B has a higher present value than option A

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Corporate Treasury And Cash Management

Authors: Robert Cooper

1st Edition

1349512699, 9781349512690

More Books

Students also viewed these Finance questions