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Calculate the present value of the two options

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Problem - Marty has just won the National Magazine Sweepstakes. He has two options for receiving his prize. The first option is to accept a $133,000 cash payment today. The second option is to receive $19,500 at the end of each of the next 12 years and a $37,500 lump sum payment in the 13th year. Marty can invest money at a 8% rate.

(a) Calculate the present value of the two options.

Which option should Marty choose to receive his winnings?

(b) If the money is invested at 11%, calculate the present value of the two options.

Which option should he choose?


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Reference no: EM131624790

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