1) Present Value. Winners of the Georgia Lotto drawing are given the choice of receiving the winning amount divided equally over 20 years or as a lump-sum cash option amount. The cash option amount is determined by discounting the annual winning payment at 6 % over 20 years. This week the lottery is worth $13 million to a single winner. What would the cash option payout be?
2) Future Value of Annuity. Twins Jessica and Joshua, both 25, graduated from college and began working in the family restaurant business. The first year, Jessica began putting 2,000 per year in an individual retirement account and contributed to it for a total of 5years. After 5 years she made no further contributions until she retired at age 65. Joshua did not start making contributions to his individual retirement account until he was 35, but he continued making contributions of 2,000 each year until he retired at age 65. Assuming that both Jessica and Joshua receive 13 % interest per year, how much will Jessica have at retirement? How much did she contribute in total? How much will Joshua have at retirement? How much did he contribute in total?
3) Jim accepted a 4,000 loan from his uncle Kurt. Uncle Kurt agreed to defer payments for two years until after Jim graduated from college. How much will Jim owe in two years if his uncle charges him 8 % interest compounded annually?