How do i solve this?
rudy has been awarded some money in a settlement. he has the option to take a lump sum payment of $200,000 or get paid an annuity of $1,000 per month for the next 25 years. which is the better deal for rudy, and by how much, assuming the growth rate of the economy is 2.75% per year?
1)
lump sum: by $14,899.82
2)
annuity: by $14,899.82
3)
annuity: by $43,535.88
4)
lump sum: by $43,535.88

2)  Annuity: by $14,899.82

Step-by-step explanation:

Given is -

Rudy has been awarded some money in a settlement.

He has the option to take a lump sum payment of $200,000

or get paid an annuity of $1,000 per month for the next 25 years.

Lets assume, that the growth rate of the economy is 2.75% per year

We will find how much the value becomes in annuity after 25 years.

p =

r = 0.0275

n = 25 years

Present value formula is =

Putting the values in formula, we get

=>

= $214900.36

Now the difference between annuity and lump sum =

We can take this as, close to given option 2.

Therefore, option 2 is correct.

The better deal for Rudy is to get paid an annuity, as it will give him $14899.82 more in 25 years than the lump sum amount.

your answer is d 2,500

step-by-step explanation:

21/58.

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