Author Question: A budget should set optimistic goals even though it may be difficult to achieve them. Indicate ... (Read 78 times)

NguyenJ · **on:** Jul 11, 2018

A budget should set optimistic goals even though it may be difficult to achieve them.

Indicate whether the statement is true or false

Question 2

Congratulations you have just won the tuition lottery The lottery pays out four beginning-of-the-year cash flows of 50,000 each with the first cash flow today and the remaining cash flows to follow at the start of years 2, 3, and 4.

Since the lottery is managed by the Fergetaboutit University system you are considering their offer of a lump sum of 160,000 today. If after considering all of he relevant economic factors, you conclude it is reasonable to use a 12 interest rate to compare these two offers. Which offer should you take and why?
A) Take the lump sum because the annuity PV is only 151,867.47.
B) Take the annuity because the PV of 170,091.56 is greater than the lump sum.
C) Take the annuity because the PV of 238,966.40 is greater than the lump sum.
D) Take the lump sum because the annuity PV is only 135,595.95.

durant1234 · **Reply #1 on:** Jul 11, 2018

Answer to Question 1

FALSE

Answer to Question 2

B
Explanation: B) Via Calculator: N =4, I =12, PMT = 50,000, set timing to Begin, Solve for PV = 170,091.56.