Case Scenario: Astros Co is sponsoring a homerun hitting contest, with the winner receiving a choice between two equivalent prizes. Prize 1 is a lump-sum amount to be paid on 10/1/05. Prize 2 pays a total of $90,000,000 as follows: $5,000,000 per year starting on 10/1/06 with the final payment made on 10/1/14, plus bonus payments of $15,000,000 on 10/1/05, 10/1/10 and 10/1/15. The interest rate for this type of prize structure is 5%.
Compute the amount that:
1) The 9 payments of $5,000,000 contribute to the value of Prize 1
2) The 3 payments of $15,000,000 contribute to the value of Prize 1
3) Will be offered for Prize 1
If prize 2 is selected and the payments are invested at 5% when received, compute the amount that:
4) The 9 payments of $5,000,000 from prize 2 will be worth at 10/1/15
5) The 3 payments of $15,000,000 from prize 2 will be worth at 10/1/15
6) The 12 total payments from prize 2 will be worth at 10/1/15
7) If prize 1 is invested at 5% when received, compute the amount that prize 1 will be worth at 10/1/15