As the winning contestant in a television game show, you are considering the prizes to be awarded.You must indicat sponsor which of the following two choices you prefer, assuming you want to maximize your wealth.Assume it is no January 1, and there is no danger whatever that the sponsor won't pay off. (1)
$1,000 now and another $1,000 at the beginning of each of the 11 subsequent months during the remainder of the year, to be deposited in an account paying 12 percent simple annual rate, but compounded monthly (to be left on deposit for the year).
(2) $12,750 at the end of the year.
Which one would you choose?
A)Choice 1
B)Choice 2
C)Choice 1, if the payments were made at the end of the year.
D)The choice would depend on how soon you need the money.
E)Either one, since they have the same present value.

Question

Quizplus · Accepted Answer

The future value of the first choice is $12,750.00, which is the same as the second choice. However, the first choice has the advantage of providing a steady stream of income throughout the year, which may be more valuable to some people than a lump sum at the end of the year.

As the Winning Contestant in a Television Game Show, You