Robert has played the New York State lottery for many years. He hasnt had much luck on winning any substantial prizes. His luck has finally changed and Robert has won a $10 million prize on April 7, 2013! He has contacted the New York State lottery to receive his winnings. He was given the following three options in which to claim his prize: A) Receive $4.2 million dollars immediately. Then receive installment payments of $800 thousand for the next 10 years. The first of the installment payments would be received on April 7, 2014.

B) Receive installment payments over the next 10 years for $1.35 million. The first installment payment would be received immediately.

C) Receive a onetime payment on April 7, 2018 for $12 million.

D) Receive installment payments over the next 20 years for $930 thousand dollars. The first payment will be received on April 7, 2014.

Required: Determine which option Robert should choose in order for him to receive the most value possible. If Robert were to invest in any opportunities he would receive an 8% interest rate. Ignore any tax consequences. (Show all work and computations for each option.)

2) Three employees of Pags Enterprises have entered into the optional pension plan which is offered through the company. Based on various factors, the three employees, Andrea, Rebecca, and Emily, will receive annual payments of $20,000, $25,000, and $30,000 respectively, upon retirement. Retirement in the plan occurs at age 75 and therefore each employee has a life expectancy of 15 years after retirement. Annual retirement payments are processed at the end of each fiscal year. Andrea will receive her first payment on 12/31/2017, Rebecca will receive hers on 12/31/2018, and Emily will receive hers on 12/31/2019.

Required:

1) Assuming Pags Enterprises uses an 11% interest rate, compute the value of the pension obligation relating to these three employees as of 12/31/2014.

2) The company is worried about having sufficient cash when these payments commence. Therefore, they want to ensure that they invest enough prior to 12/31/2017 so that they can accumulate enough cash for all three employees. Management has decided to make three equal annual contributions to a fund that will earn 11% interest compounded annually. The first contribution will be made on 12/31/2014. What amount will Pags Enterprises have to contribute each period, in order to have sufficient cash on 12/31/2017, for all three employees pension plans?