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2. Listed below are three lottery payout options. Rather than compare the payout options at their present values, compare the payout options at their future
2. Listed below are three lottery payout options. Rather than compare the payout options at their present values, compare the payout options at their future value nine years from now. a. Using a 6% interest rate, what is the future value of each payout option? b. Rank your preference of payout options. C. Does computing the future value rather than the present value of the options change your preference of payout options? Explain. (Click the icon to view the future value factor table.) 5(Click the icon to view the future value annuity factor table.) (Click the icon to view the present value factor table.) (Click the icon to view the present value annuity factor table.) a. Using a 6% interest rate, what is the future value of each payout option? Compute the future value of each payout option. (Round your answers to the nearest whole dollar.) Future value of Option 1 Future value of Option 2 Future value of Option 3 $990,000 now Option 1: Option 2: Option 3: b. Rank your preference among payout options. $152,000 at the end of each year for the next nine years $1,600,000 nine years from now (1) Most preferable Next preferable Least preferable (2) (3) c. Does computing the future value rather than the present value of the options change your preference between payout options? Explain. (4) We can make a valid comparison between the payout options (4) as long as we convert each payment option to its value (5) using the same interest rate. The preference among the options (6) we compare the options at their present values or at their future values. Valid comparisons can be made among options at any point in time, as long as we convert (7) cash flows to (8) point in time using (9) interest rate (4) O at any point in time O only at the future point in time O only at the present point in time (5) O at the future point in time O at the present point in time O at the same point in time (6) differs if O is the same regardless of whether (7) O all O most of the (8) O different (9) O different the same o the same
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