Question

1. Becky won $108,000 by coming in first place at a chess tournament, and she has the option of receiving 4 quarterly payments of $27,000, with the first payment in 3 months, or 1 lump-sum payment of $108,000 occurring in 12 months. Once she receives her money, she plans on putting it in a savings account paying simple interest at an annual interest rate of 8.8% calculated quarterly. Becky's financial adviser told her that she'll "lose" money if she takes the lump-sum payment, and Becky wants to calculate how much she’ll "lose". HELP !! I don’t understand ! please show work

Answer 1

Explanation:

From the information being provided;

We learnt that Becky pays simple interest at an annual interest rate of 8.8% which is calculated quarterly.

i.e.
`(8.8\%)/(4)= 2.2\%`

Since the first payment of $27,000 happened in the first three months, therefore, Becky will be able to have the money in the bank for 3 quarters prior to the lump-sum payment gets started.

Thus, the estimate of the amount Becky would earn as interest during this period of time is as follows:

`I =(PRT)/(100)`

`I =(27000* 2.2 * 3)/(100)`

`I =(178200)/(100)`

I = $1,782