You can choose any one of the following prizes. If your discount rate is 10.5%...
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You can choose any one of the following prizes. If your discount rate is 10.5% (annual compounding), which is the most valuable prize, i.e. has the greatest present value?
(1) A lump sum payment of $25,000 at the end of 10 years.
(2) A lump sum payment of $10,000 today.
(3) A perpetual stream of annual payments starting at $500 in one year and increasing at 5% per year thereafter.
(4) A perpetual stream of annual payments of $1,000 starting in one year. Five annual payments of $2,800 - the first payment occurs one year from today.
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