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Find the present value of option

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Reference no: EM132648726

You have just won first prize in a quantitative competition.

You have the following choices to receive your winnings:

Option I: Receive $3,000,000 immediately.

Option II: Receive five $1,000,000 payments paid every other year beginning in year T=2. For example, you receive a $1 million dollars payment in year T=2, T=4, T=6, T=8, and T=10.

a. What is the present value of each option if R=0.06? Which option would you choose?

b. What is the present value of each option if R=0.12? Which option would you choose?

c. What interest rate R will make the present value of both options equal? Hint: use Excel's Data - What If - Goal Seek analysis

Show what you do to se up goal seek for c

Also take snap shots from excel and how did you get the answers, please show work for c!

Reference no: EM132648726

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