Your rich uncle, George, left you an inheritance of $1,000.000. The provision in the Will is that you can either have the $1,000,000 up front as one lump sum, or you can have annual payments of $25,000 for the first year plus 10% each subsequent year for 25 years. If the current long-term interest rates are @ 5% comp. annually, what should you choose as the better deal? Thanks for help.
Find the Present Value of the stream of payments and then compare that result to the $1,000,000 and see which is greater. Then, of course, the greater number is the better deal. You can use this summation formula to find the PV of the 25 payments:
∑[(25000*1.1^n) / 1.05^(n+1)], n=0 to 24. This is the easiest way to solve it.
