Answer Happy

Step 3: Practice: Evaluating Lump Sums and Annuities Now it's time for you to practice what you've learned. Suppose that Kevin just won the lottery and must choose between three award options: 1. A lump sum of $40,000,000 received today 2. 15 end-of-year payments of $5,000,000 3. 40 end-of-year payments of $3,600,000 Assume the interest rate is 8.00 %, entered as 8 on your financial calculator. Note: Take the absolute value of the present value when answering this question. Using a financial calculator yields a present value for option 2 of approximately approximately maximize present value. (when the interest rate is 8.00%). Based on this, Kevin should choose option Now assume the interest rate is 9.00%, entered as 9 on your financial calculator. Note: Take the absolute value of the present value when answering this question. Using the table you just filled out and a financial calculator, yields a present value for option 2 of approximately present value for option 3 of approximately if he seeks to maximize present value. and a present value for option 3 of if he seeks to Assume the interest rate is 10.00 %, entered as 10 on your financial calculator. and a (when the interest rate is 9.00 % ). Based on this, Kevin should choose option As the interest rate increases, options 2 and 3 become Note: Take the absolute value of the present value when answering this question. Using the table you just filled out and a financial calculator, yields a present value for option 2 of approximately present value for option 3 of approximately option if he seeks to maximize present value. and a (when the interest rate is 10.00%). Based on this, Kevin should choose attractive, relative to option 1.