A dentist can sell his practice for $1,100,000 cash or for $250,000 plus $270,000 at the end of each year for 4 years. (a) Find the present value of the annuity that is offered if money is worth 8% compounded annually. (b) If
She takes the $1,100,000, spends $250,000 of it, and invests the rest in a 4-year annuity at 8% compounded
Annually, what size annuity payment will she receive at the end of each year? (c) Which is better, taking the
$250,000 and the annuity or taking the cash settlement?
A) (a)

\$ 581,278.26

;
(b)

\$ 241,234.72

;
(c)

\$ 250,000

plus the annuity has a smaller present value than

\$ 1,100,000

. She should take the cash settleme
B) (a)

\$ 992,644.41

;
(b)

\$ 253,613.48

;
(c)

\$ 250,000

plus the annuity has a larger present value than

\$ 1,100,000

. She should take

\$ 250,000

plus the i
C) (a)

\$ 894,274.25

;
(b)

\$ 256,632.68

;
(c)

\$ 250,000

plus the annuity has a larger present value than

\$ 1,100,000

. She should take

\$ 250,000

plus the i
D) (a)

\$ 697,533.91

;
(b)

\$ 255,726.92

;
(c)

\$ 250,000

plus the annuity has a smaller present value than

\$ 1,100,000

. She should take the

\$ 250,000

plu: annuity. She should take the cash settlement. .

If $4900 Is Invested in an Account Earning 7% Annual n=ln⁡20.07\mathrm { n } = \frac { \ln 2 } { 0.07 }n=0.07ln2​

Multiple Choice

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If $4900 Is Invested in an Account Earning 7% Annual $\mathrm { n } = \frac { \ln 2 } { 0.07 }$

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