Question 1 (35 marks) Sam, age 32, owns and runs a dessert shop in Shatin. He has just received a notification that he has won the first prize in the Bloom Lottery that gives significant changes on his life goals. He knows that you are a financial analyst in a local bank. He calls you for financial advice on making the following financial decisions. (a) For the first prize in the Bloom Lottery, Sam has two options for collecting the prize. The first annuity option is to receive $1,000,000 today and then followed by 245 monthly payments of $200,000. The second lump-sum option is to receive the $20 million today. i. ii. If the appropriate discount rate is 18 percent, what is the present value of his windfall under the annuity option? Advise, and briefly explain (within 40 words), whether Sam should choose the first annuity option or the second lump-sum option. (b) Sam plans to deposit $100,000 into a saving account that earns interest at 8.5% compounded daily (with 365 days in a year). How much interest will be earned during the second year? Page 1 of 2 Question 1 (35 marks) Sam, age 32, owns and runs a dessert shop in Shatin. He has just received a notification that he has won the first prize in the Bloom Lottery that gives significant changes on his life goals. He knows that you are a financial analyst in a local bank. He calls you for financial advice on making the following financial decisions. (a) For the first prize in the Bloom Lottery, Sam has two options for collecting the prize. The first annuity option is to receive $1,000,000 today and then followed by 245 monthly payments of $200,000. The second lump-sum option is to receive the $20 million today. i. ii. If the appropriate discount rate is 18 percent, what is the present value of his windfall under the annuity option? Advise, and briefly explain (within 40 words), whether Sam should choose the first annuity option or the second lump-sum option. (b) Sam plans to deposit $100,000 into a saving account that earns interest at 8.5% compounded daily (with 365 days in a year). How much interest will be earned during the second year? Page 1 of 2