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A family member passes away and leaves you an inheritance. The terms of the will specify that you may choose between annual payments of $50,000 at the end of each of 5 years, or a lump sum payment of $200,000 now. Seeing this as an opportunity to start saving for the future, you plan to invest the full amount of the inheritance in a mutual fund that earns 10% annually.

a. On purely financial grounds, which option should you choose and why?

b. What annual payment amount would make you indifferent between the $200,000 lump sum now option and the annual payments at the end of each of 5 years?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92316717

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