[temour123]

Need help with these 2 questions

1. The LIFE LONG LOTTERY offers two possible scenarios to their winners. $250 000 cash when they trade in their ticket or $1000 at the end of each month for 25 years. If you could expect a return of 8% on your money, which option should you choose to get the best value?
a) Draw a line diagram for the monthly winnings.
b) Use the sum of a geometric series to determine the Present value of the regular payments.

I don't know how to draw timeline and how to determine the present value


Maria received $50 on her 16th birthday, and $70 on her 17th birthday, both of which she immediately invested in the bank with interest compounded annually. On her 18th birthday, she had $134.97 in her account. Draw a time line and calculate the annual interest rate.
4. Raul's grandparents invested $1000 in a GIC for him on his 15th birthday and $2000 on his sixteenth birthday. During each of the two years the money earned 8.5% compounded annually.
a) Draw a time line to show the situation.

[Perito]

A time line is simply a line showing the "value" of money at different times. For example, if you have $1000, what is it worth next year if you invest it at 8%?



In two years it will be worth:



You simply draw a graph with X-axis showing the years: 1,2,3,. and the Y-axis showing the value.

The Present Value is $1000 in this case. What you want to do is to figure out the value of the various situations in 25 years and back-calculate the present value.

In the LIFE LONG LOTTERY, you get $250,000 instead of $1000. You can figure out what it would be worth if you invested it for 25 years at 8%.

The second question, if you get $1000 every month for 25 years. You can figure out the total amount they would pay you very easily (12 x 25 x $1000). But, you also need to figure out interest on the amount they pay every month. That will take a bit longer, but it's a straight-forward example of what I showed you, above.

The "present value" is the value (of either situation) after 25 years. You modify that by "undoing" the interest calculations and figuring out what it would be worth today. The formula is simple: Just figure that you're compounding some principle at 8% to get to the value at 25 years and solve for the principle.

The other problems are done similarly.