Contemporary Engineering Economics 6th Edition by Chan Park

تمرين 5

You may have already won $2 million! Just peel the game piece off the Instant Winner Sweepstakes ticket, and mail it to us along with your order for subscriptions to your two favorite magazines. As a grand prize winner, you may choose between a $1 million cash prize paid immediately or $100,000 per year for 20 years-that's $2 million! Suppose that, instead of receiving one lump sum of $1 million, you decide to accept the 20 annual installments of $100,000. If you are like most jackpot winners, you will be tempted to spend your winnings to improve your lifestyle during the first several years. Only after you get this type of spending "out of your system" will you save later sums for investment purposes. Suppose that you are considering the following two options.
Option 1: : You save your winnings for the first 7 years and then spend every cent of the winnings in the remaining 13 years.
Option 2: You do the reverse, spending for 7 years and then saving for 13 years.
If you can save winnings at 7% interest, how much would you have at the end of 20 years, and what interest rate on your savings will make these two options equivalent