Rudy has been awarded some money in a settlement. He has the option to take a lump sum payment of $200,000 or get paid an annuity of $1,000 per month for the next 25 years. Which is the better deal for Rudy, and by how much, assuming the growth rate of the economy is 2.75% per year?

Question

anonymous · Answer

i need help

compassionate · Answer

If you take the 200k and invest it in bonds at 2.75%, you will have 394k after 25 years.
If you take the 12k a year and buy bonds at 2.75% every year you will have 423k after 25 years.

OpenStudy Ambassador; Compassionate

anonymous · Answer

Lump Sum: by $14,899.82

Lump Sum: by $43,535.88

Annuity: by $14,899.82

Annuity: by $43,535.88 
i got c

compassionate · Answer

Add the numbers together.

anonymous · Answer

i dont now if it is right

anonymous · Answer

$200k will give you $5500 per year from 2.75% per year.

Other option is $12,000 per year. No-brainer.

anonymous · Answer

Sammy has an annuity that pays him $9600 at the beginning of each year. Assume the economy will grow at a rate of 3.1% annually. What is the value of the annuity if he received it now instead of over a period of 10 years?

anonymous · Answer

do you know how to do this i didnt  get this

anonymous · Answer

Net present value =
 9600[1/(1+0.031) + 1/(1+0.031)^2+...+1/(1+0.031)^10]

Future payments are "discounted" by r=0.031 here each year.

e.g., 9600 ten years in future worth only 9600/(1.031)^10 = 7074 today.