Indifferent between cash now or taking the annuity

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Reference no: EM13875996

1) You have decided to open up a savings account. Your bank has offered you three interest options: A) 10.55% annually, B) 10.40% quarterly and C) 10.30% weekly. Which do you prefer?

2) What is the present value of $1,000 a month to be received for the next 50 years with an interest rate of 8.0% compounded monthly?

3) What is the present value of $12,000 a year to be received for the next 50 years with an interest rate of 8.0%?

4) You just won the Powerball, as a result you have the choice between taking $250 million today or taking a 20-year annuity. Interest rates are expected to hold at 3.75% over the next 20-years. How much would the annuity need to be annually for you to be indifferent between cash now or taking the annuity?

5) (Bonus Question – 5 points) What is the present value of $25,000 received in 10 years if interest rates are 6.5% with continuous compounding?

Reference no: EM13875996

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