Problem 1:

What is value of perpetuity of the $150 at 13%?

i) $1,120.45

ii) $1,153.85

iii) $1,167.43

iv) $1,099.34

Problem 2:

Congratulations! You’ve just won the Publishers Corporation Sweepstakes. You’ve been offered a lump sum of $1,000,000, or lifetime (end-of-year) annuity of $100,000 per year. If you anticipate living for 20 years and can earn the annual interest rate of 15 percent on your investments, which alternative must you choose (ignoring tax consequences)?

i) Take the million dollars

ii) Take the annuity

iii) Give it to your favourite Professor.

iv) Donate it to FSC parking facilities.