Matthew Lesko, the guy in the question mark suit who does infomercials, offers y
ID: 2655676 • Letter: M
Question
Matthew Lesko, the guy in the question mark suit who does infomercials, offers you what he calls the opportunity of a lifetime. For just $315,000 he is willing to give you $25,000 per year forever. The first payment occurs 21 years from today. If interest rates are currently 4.4%, would you invest?
Yes, that’s a steal!
No, because the PV of the investment is only $240,147.
No, because the PV of the investment is only $230,026.
No, because the PV of the investment is only $248,914.
show work please
Yes, that’s a steal!
No, because the PV of the investment is only $240,147.
No, because the PV of the investment is only $230,026.
No, because the PV of the investment is only $248,914.
show work please
Explanation / Answer
First we will calculate how much we will get if we get 25000 forever when Interest rate is 4.4%
Future value = PMT/Interest rate
Future value= 25000 / 0.044
Now since first payment is to be received by us at the beginning of year 21
So we will figure out Present Value for the same
Present value = Future value x present value factor for 20th year for 4.4%
= 568181.80 x 0.422659
= 240147.1068
Since the present value of return is lower than 315000. So we will not invest in this option.
Answer is b
=568181.8