E 5-45
Future and present value
LOS-3, LO5-7, LO5-8
Answer each of the following independent questions.
Yoa recently won a lostery and have the option of receiving one of the following three prizes: (1)
$64,000 cash immediately, (2)
$20,000 cash immediately and a six-year annuity of
$8,000 beginning one year from today, or (3) a six-year annuity of
$13,000 beginning one year from today. Assuming an interest rate of
6% compounded annually, which option should you choose?
A company wants to accumulate a sum of money to repay certain debts due in the future. The company will make annual deposits of
$100,000 into a special bunk account at the end of each of 10 years. Assuming the bank account pays
7% interest compounded annually, what will be the fund balance after the last payment is made in ten years?