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In March 2014, Warren Buffett, one of the most successful investors and the CEO of Berkshire Hathaway Inc. offered $1 billion for the winner who has a perfect March madness Bracket. The winner has two choices:

A) Receive 40 annual payments of 25 million each (assume beginning-of- the-year payments)

B) Receive a lump sum payment today of $500 million immediately

a. Draw the time lines for the two choices.
b. Find the FV (at the end of year 40) of the two choices assuming interest rate is 3%? Which choice should the group select?
c. Find the PV of the two choices assuming interest rate is 3%. Which choice should the group select?
d. Find the FV (at the end of year 40) for the two choices assuming interest is 9%. Which choice should the group select?
Find the PV of the two choices assuming interest rate is 9%. Which choice should the group select?

Reference no: EM132766397

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