Congratulations! You have just won first prize in a raffle and must choose between $50,000 in cash today or an annuity of $12,000 a year for five years. (The annuity payments would come to you at the end of each year.) Which of these two choices is worth more, assuming a 7% discount rate? Show your calculations

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Congratulations! You have just won first prize in a raffle and must choose between $50,000 in cash today or an annuity of $12,000 a year for five years. (The annuity payments would come to you at the end of each year.) Which of these two choices is worth more, assuming a 7% discount rate? Show your calculations

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PVA5 = PMT(PVIFA7%,5),

($12,000)(4.100) = $49,200

The annuity is worth less than the $50,000 in cash today.

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