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Applications of the Time Value of Money

Part#1: The main TVM problems relating to healthcare are: a) present value of a lump sum b) present value of an annuity stream c) future value of a lump sum d) future value of an annuity stream. Provide an example of each of these TVM problems.

Part#2: Answer the following questions, show your calculations

1) You have just won the state lottery and have three award options from which to choose. You can elect to receive a lump sum payment today of $46 million, 10 annual end-of-year payments of $7 million, or 30 annual end-of-year payments of $4 million. If you expect to earn a 7% annual return on investments, which option should you choose and why?

a. Lump sum, b. 10 payments, c. 30 payments, and d. It doesn't matter, the present value of each of the options is equal.

2) If a firm earning per share grows from $1 to $2 over the 10-year period, what is the annual growth rate (%)?

Solution Summary

This posting addresses the different scenarios of the time value of money in real life examples in the attached Excel file.

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