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Unformatted text preview: Lecture 3 Comprehensive Problem Today is 1/1/2011. You just won a lottery with prize money of $1 , 000 , 000. However, as the lotteries often work, you don’t get the entire amount today. Instead, the lottery organization offers you two choices: (i) accept 20 equal annual payments of $50 , 000 with the first payment beginning today, or (ii) accept a lump- sum payment of $570 , 000 today. You are confident that you can invest money at the stated interest rate of 6% compounded quarterly. You are planning to save all the money from the lottery. Additionally, you are planning to use the money you earn at your job to save an extra $5 , 000 a year for retirement, with the first such extra deposit into your retirement account starting next year (1/1/2012). You expect that you will be able to grow this extra savings by 3% annually and make the last deposit in 40 years (1/1/2051). You plan to retire in 41 years (1/1/2052) and plan to withdraw a fixed amount of money from your retirement account on the first of every month for the following 20 years with the first withdrawal on 1/1/2052 and the last withdrawal on 1/1/2072. After you make your last withdrawal on 1/1/2072, you want to havethe last withdrawal on 1/1/2072....
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This note was uploaded on 10/21/2011 for the course RSM 332 taught by Professor Raymondkan during the Spring '08 term at University of Toronto.
- Spring '08