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Calculate the present value of each option

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Question - After hearing a knock at your front door, you are surprised to see the Prize Patrol from a large, well-known magazine subscription company. It has arrived with the good news that you are the big winner, having won $27 million. You have three options.

(a) Receive $1.35 million per year for the next 20 years.

(b) Have $9.75 million today.

(c) Have $3.75 million today and receive $1,050,000 for each of the next 20 years.

Your financial adviser tells you that it is reasonable to expect to earn 13 percent on investments.

Required -

1. Calculate the present value of each option. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.)

2. Determine which option you prefer.

Reference no: EM132714121

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