Congrats! You just won a lottery and are offered two options:

Option 1: $100,000 per year forever beginning today

Option 2: $1M today

a) Which option has a higher present value if your opportunity cost of capital is 8%?

b) What is the interest rate that would make the two options break-even?

Compute the present value of $25,000 to be received in 20 years if the APR interest of 15% per year is compounded (a) annually, and (b) quarterly.

Suppose your opportunity cost of capital is 10%. What is the present value of a financial asset that pays $1 in 5 years, and $1 in each year thereafter, in perpetuity?

Find the discount rates implied by the following:

(a) You lend $500 today and receive a promise for repayment three years from now of $595.23.

(b) You invest $1,400 today and will receive $2,592.59 back at the end of eight years.

As a winner of a local competition, you can choose one of the following prizes:

(a) $100,000 now

(b) $170,000 at the end of 4 years

(c) $11,600 a year forever starting from next year

(d) $6,000 next year and increasing thereafter by 5% a year forever

(e) $18,000 per year starting next year for 10 years

(f) $20,000 next year, increasing thereafter by 3% a year and stopping after the 7th payment

If the interest rate is 12%, which prize is the most valuable?

Your great aunt Matilda put some money in an account for you on the day you were born. This account pays 8% interest per year. On your21st birthday the account balance was $5,033.83.

The amount of money that your great aunt Matilda originally put in the account is closest to:

a. $1,000

b. $600

c. $1,200

d. $800