Question :

1. You are offered a $2,700,000 retirement package to be given in $90,000 payments at the end of each of the next 30 years. You are also given the option of accepting a $1,170,000 lump sum payment now. Interest rates are at 7.4% over the next 30 years.

Which is a better option?

• the offered annual payments of $90,000
• The lump sum of $1,170,000
• they are the same
• cannot be determined

2. Determine how much is in each account on the basis of the indicated compounding after the specified years have passed; P is the initial principal, and r is the annual rate given as a percent. (Round your answers to the nearest cent.)

after one year where P = $3300 and r = 7%

(a) compounded annually $ ________ (b) compounded quarterly $ _________ (c) compounded monthly $ _________ (d) compounded weekly $ _________ (e) compounded daily $ _________

3. Two oil wells are for sale. The first will yield payments of $10,400 at the end of each of the next 14 years, while the second will yield $6,400 at the end of each of the next 26 years. Interest rates are assumed to hold steady at 8.7% per year over the next 26 years.

Which has the higher present value?

• the first oil well
• The second oil well
• they are the same
• cannot be determined