1. You’ve won a state lottery and have two choices of how you want your winnings to be paid to you. You can get $2,000,000 today or you can get $22,000 per month, starting next month, for 10 years. If your investments earn 5% APR (compounded monthly) which alternative has a higher present value terms and by how much?
The annuity is better by $640,000
The $2,000,000 is better by $74,190
The $2,000,000 is better by $640,000
The annuity is better by $74,190
None of the choices is correct
2. Peter Inc. has an asset with a Book Value of $700. It is expected to generate cash flows of $180 per year for the next four years. If the discount rate is 6%, then what is the Present Value of the Asset's Discounted Cash Flows?
a. $588
b. $624
c. $681
d. $720