1. Mr. Bearer may choose to take a lump-sum payment of $25,292.8 now from his insurance policy or an annuity of $3,200 annually as long as he lives. How long must Mr. Bearer anticipate living for the annuity to be indifferent to the lump sum if interest rate is 8%?
a. 13 years
b. 15 years
c. 11 years
d. 9 years
2. The Swell Computer Company has developed a new line of desktop computers. It is estimated that the cash returns generated by the new product line will be $800,000 per year for the next five years, and then $500,000 per year for 3 years after that (the cash returns occur at the end of each year). At a 9% interest rate, what is the present value of these cash returns?
a. $3,725,664
b. $4,105,281
c. $3,516,793
d. $3,934,575