Jia has just won a $20 million lottery, which will pay her $1 million at the end of each year for 20 years. An investor has offered her $10 million for this annuity. She estimates that she can earn 10 percent interest, compounded annually, on any amounts she invests. She asks your advice on whether to accept or reject the offer. What will you tell her? (Ignore Taxes)
What will be an ideal response?
P = ($1,000,000/0.1) × [1 - (1/(1.1)20] = $8,513,564
$10,000,000 > $8,513,564 Accept the offer.
You might also like to view...
John is risk manager of Alpha-2-Omega Company. John wants coverage for "direct physical loss" ("open perils" coverage) under the business and personal property (BPP) coverage form. Which causes-of-loss form should he select?
A) special form B) basic form C) standard form D) broad form
EVA depends on both the amount of capital employed and the SPREAD between ROCE and Kc
Indicate whether the statement is true or false
The success or failure of a competitor's marketing channel may encourage or dissuade an organization from considering a similar approach.
Answer the following statement true (T) or false (F)
The equal-appearing interval scale is also known as ___________________.
a) Likert Scale b) Thurstone Scale c) Guttmann Scale d) None of the above