Question 5

Year	Investment X	Investment Y
1	$1,000	$4,000
2	2,000	3,000
3	3,000	2,000
4	4,000	1,000
Total	$10,000	$10,000

1. Mark has just won the grand prize on the Hoot n Holler quiz show. He has a choice between (a) receiving $500,000 immediately and (b) receiving $60,000 per year for eight years plus a lump sum of $200,000 at the end of the eight-year period. If Mark can get a return of 10% on his investments, which option would you recommend that he accept? (Use present value analysis and show all computations.)

You have just learned that you are a beneficiary in the will of your late Aunt Susan. The executrix of her estate has given you three options as to how you may receive your inheritance:

You may receive $50,000 immediately.

You may receive $75,000 at the end of six years.

You may receive $12,000 at the end of each year for six years (a total of $72,000).

2. If you can invest money at a 12% return, which option would you prefer?