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years ) or as a single amount of $ 6 9 7 , 0 0 0 paid immediately. a . If you expect to earn
years or as a single amount of $ paid immediately.
a If you expect to earn annually on your investments over the next years, ignoring taxes and other considerations, which alternative should you take? Why?
b Would your decision in part a change if you could earn rather than on your investments over the next years? Why?
c At approximately what interest rate would you be indifferent between the two options? different timing of cash flows. A way to make a meaningful comparison of the two alternatives is to compare their present values.
If you take the prize as an annity, the present value of the year ordinary annuity is : Round to the nearest cent.
If you take the prize as a single amount, the present value of the lump sum is Round to the nearest dollar.
Which alternative should be chosen? Select the best answer below.
Annual payments, because the present value is greater.
Lump sum, because the present value is greater.
b If you earned rather than on your investments, the present value of the year ordinary annuity is $ Round to the nearest cent.
Which alternative should be chosen? Select the best answer below.
Lump sum, because the present value is greater.
Annual payments, because the present value is greater.
c On a strictly economic basis, the rate at which you would be indifferent between the two plans is Round to two decimal places.
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