Question

Rehan has been awarded some money in a settlement. He has the option to take a lump sum payment of $170,000 or get paid an annuity of $1,000 per month for the next 20 years. Which is the better deal for Rehan, and by how much, assuming the growth rate of the economy is 3.05% per year?

Answer 1

U2L4 - Present value -  
1) Marilyn knows that she needs $45000 for a down payment on a house. She found an investment that earns 3.15% interest compounding monthly. She would like to purchase the home in 5 years. How much should she put in the account now to ensure she has her down payment? $38,450.39
2) Joey is saving up for a down payment on a car. He plans to invest $2000 at the end of every year for 3 years. If the interest rate on the account is 2.05% compounding annually, what is the present value of the investment?
$5,762.15
3) Olivia is 18 and would like to buy a house when she is 30. What is the discount factor for today's prices if te housing values increase 8% per year?
39.7%
4) Rehan has been awarded some money in a settlement. He has the option to take a lump sum payment of $170,000 or get paid an annuity of $1,000 per month for the next 20 years. Which is the better deal for Rehan, and by how much, assuming the growth rate of the economy is 3.05% per year? 
 Annuity: by $7,707.19