Basis of the indicated compounding

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Question : 1. You are offered a $2,700,000$90,0001,170,00030  Which is a better option? 

retirement package to be given in payments at the end of each of the next 30 years. You are also given the option of accepting a $ lump sum payment now. Interest rates are at 7.4% over the next years. 

  • the offered annual payments of $90,000
  • The lump sum of $1,170,000    
  • they are the same
  • cannot be determined

2. Determine how much is in each account on the basis of the indicated compounding after the specified years have passed; P is the initial principal, and r is the annual rate given as a percent. (Round your answers to the nearest cent.)

after one year where P = $3300 and r = 7%

(a) compounded annually

(b) compounded quarterly

(c) compounded monthly

(d) compounded weekly

(e) compounded daily

3. Two oil wells are for sale. The first will yield payments of $10,400 at the end of each of the next 14 years, while the second will yield $6,400 at the end of each of the next 26 years. Interest rates are assumed to hold steady at 8.7% per year over the next 26 years. 

Which has the higher present value?

  • the first oil well
  • The second oil well    
  • they are the same
  • cannot be determined

Reference no: EM133067051

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