You have just won the lottery and you can choose between the following payout options. The annual

interest rate (EAR) is 8%.

Option 1: Ten annual payments of $50,000; the first payment is made in two years from today.

Option 2: Ten payments of $100,000 received everythreeyears; the first payment is madetwoyears

from today (i.e., payments are att= 2, 5, 8, , 29).

Option 3: Nine annual payments; the first payment of $30,000 is received in one year from today, and

then the payments are growing at an annual rate of 8% (i.e., the second payment is

30,0001.08, the third payment is 30,0001.08

2

, etc.).

Option 4: Quarterly payments of $5,000 to perpetuity; first payment is made in one quarter from today.

3FIN 301

13. What is thepresent value(value today) of the payments of Option 1?

a) $500,000

b) $362,344

c) $335,504

d) $310,652

e) $287,640

14. What is thepresent value(value today) of the payments of Option 2?

a) $321,090

b) $374,520

c) $346,777

d) $621,303

e) $456,298

15. What is thepresent value(value today) of the payments of Option 3?

a) $300,000

b) $231,481

c) $250,000

d) $270,000

e) No present value exists because r=g.

16. What is thepresent value(value today) of the payments of Option 4?

a) $257,380

b) $345,370

c) $277,050

d) $62,500

e) $250,000

Please use the annuity due formula to solve instead of excel, thanks