1. Fred and Wilma are cousins born. They were both born on July 29th 1997....
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1. Fred and Wilma are cousins born. They were both born on July 29th 1997. When Fred turned 20 he invested $ 8,500 and earns 7.5% compound interest. Wilma is planning to invest $ 17,000 when she turns 40 and will also earn 7.5% compound interest. Who will have more money when they both reach the age of 65, and by how much more? Explain why Fred will always have more money regardless of how long they live.
2. Congrats your group just won the lottery. The Ontario Lottery corporation has given you two options on how to collect your winnings. You are so excited to put into practice the material you learned at Yorkville University. Option 1 pays you $ 1,000,000 today Option 2 pays you $ 1,750,000 in five years from now Calculate the Present Value of both options with 5% discount rate. Then using the same rate base your analysis on the Future Value. Which option would you choose? What do your results suggest as a general rule for approaching such problems? (Make your choices based purely on the time value of money.)
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