A Woman Can Sell Her Computer Graphics Company for $900,000 $\$ 217,967.04$

question 103

Multiple Choice

A woman can sell her computer graphics company for $900,000 cash or for $100,000 plus $65,000 at the end of each year for 4 years. (a) Find the present value of the annuity that is offered if money is worth 7% compounded
Annually. (b) If she takes the $900,000, spends $100,000 of it, and invests the rest in a 4-year annuity at 7%
Compounded annually, what size annuity payment will she receive at the end of each year? (c) Which is better,
Taking the $100,000 and the annuity or taking the cash settlement?

• A) (a) \(\$ 217,967.04\);
• (b) \(\$ 206,659.68\);
• (c) \(\$ 100,000\) plus the annuity has a smaller present value than \(\$ 900,000\). She should take the cash settlemen
• B) (a) \(\$ 330,253.10\);
• (b) \(\$ 295,228.12\);
• (c) \(\$ 100,000\) plus the annuity has a larger present value than \(\$ 900,000\). She should take \(\$ 100,000\) plus the annuity.
• C) (a) \(\$ 297,227.79\);
• (b) \(\$ 265,705.31\);
• (c) \(\$ 100,000\) plus the annuity has a larger present value than \(\$ 900,000\). She should take \(\$ 100,000\) plus the annuity.
• D) (a) \(\$ 220,168.73\);
• (b) \(\$ 236,182.49\);
• (c) \(\$ 100,000\) plus the annuity has a smaller present value than \(\$ 900,000\). She should take the cash settlemen

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Definitions:

Collateral Bond

A type of bond that is secured by a specific pledge of collateral.

Debenture

An unsecured bond that relies on the creditworthiness and reputation of the issuer, without collateral.

Face Value

The nominal or dollar value printed on a financial instrument like a bond or stock certificate, representing the amount to be repaid at maturity.

Principal Amount

The original sum of money borrowed in a loan, or invested, upon which interest is calculated.