You have just won the First Annual Prime Minister Look-Alike contest and have been offered

the following alternative ways of receiving the prize money. Assume that each alternative is

riskfree (that is, the cash flows are certain to occur) and the interest rate is 8% per annum.

a) $140,000 at the end of year 3.

b) $28,000 at the end of each of the next 5 years with the first cash flow occurring at the end

of year 1.

c) $9,000 at the end of each year in perpetuity with the first cash flow occurring at the end of

year 1.

d) $12,000 at the end of each year in perpetuity with the first cash flow occurring at the end

of year 4.

Assuming end-of-the-year cash flows, which is the best way to receive the prize money? Show

all your calculations.