Reference no: EM13846890
You have just won a lottery and you can choose between the following payout options. The annual interest rate (EAR) is 9%.
a. $100,000 right now and $50,000 every two years starting 3 years from now and ending 17 years from now (i.e. payments are at t = 0, t = 3, t = 5, … , t = 15, t = 17).
b. $50,000 a year for 25 years with the first payment one year from today (i.e. payments are at t = 1, 2, 3 … 24, 25).
c. 20 annual payments of $50,000 and a 21st payment of $300,000. The first payment is made right now, and the $300,000 payment is made one year after the last $50,000 payment.
How much more is the best option worth today relative to the worst option?
Step by step solution please
Use tables if necessary
Does not use excel please?
Explain using formulas
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