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Explain the ordinary annuity or the immediate lump sum

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(a) Robert just won a government lottery. His prize can be taken either in the form of a 20-year ordinary annuity or as a lump sum that is paid immediately. What concept could Robert apply to assist him in choosing between the ordinary annuity or the immediate lump sum? Explain how this analysis will help Robert in making a better decision.

b) "If a savings account has an APR (annual percentage rate) of 10%, then its EAR (effective annual rate) must be higher than 10%." Is this statement correct or incorrect? Explain your answer.

(c) Robert is planning to save up for a trip to Italy in 5 years. He estimates that he will need $20,000 for this trip. Currently, Robert has $5,000 in a savings account paying 3.6% annually. He plans to use his current savings plus what he can save over the next 5 years to finance this trip. How much money should Robert save at the beginning of each year over the next 5 years to finance this trip?

Reference no: EM133069318

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