Prize Draw Exercise Strictly Confidential

Table of Contents
#VALUE!

Notes
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Prize Draw Exercise
You’re one of the five lucky people who found a mystery message at the bottom
of a recently purchased can of soda. You can choose one of the following prizes:

a) 200,000 now 200000

b) 360,000 five years from now 360000
c) 22,800 a year, forever 22800
d) 38,000 for each of ten years 38000
e) 13,000 next year, and increasing thereafter by 5% per year. 13000

If the discount rate is 12%, which prize offers the highest present value? 12%

Answers

PV
a) 200,000
b) 204,274
c) 190,000 year 1 2 3
d) 214,708 Discount ra0.8928571 0.7971939 0.7117802
e) 185,714
 5%

4 5 6 7 8 9 10 Annuity Factor
0.6355181 0.5674269 0.5066311 0.4523492 0.4038832 0.36061 0.3219732 5.650223