3. You won a $1,000,000 in the Hoosier Lottery. You can tell your instructors what you really think of them, quit school, quit your job and never have to work another day in your life. You are a free person. Are you really?

Your decision with your lottery winnings has 2 options.

1. Take $50,000 per year for the next 20 years
2. Take the Cash Option. You know that cash today is worth more than cash tomorrow because you learned the time value of money in V186. You believe that you can invest and get a better return than the Lotterys discount rate or that you can enjoy the benefits of winning now instead of later.

You decide to take the Cash Option (2) so.

You remember from V186 the discounting formula in the Mikesell textbook. It is PV=FVn/(1+r)n

The Hoosier Lottery has a discount rate of 6%. How much money will you receive by taking the cash option?

4. To what present value would $50,000 received in five years, assuming an annual discount rate of 4%?