A B 2 3 4 5 WINNING THE LOTTERY! Toni won the Washington State Lottery. She was given three options for receiving her winnings. C D E F G H J K L Score: 0 /19 758160 751300 200000 200000 200000 200000 200000 1000000 N P Q R S T U V 6 Toni uses a discount rate of 10% in making her decision. 7 8 PV at 10% Show cash flow each year, even if it's 0. 9 0 1 2 3 4 5 + 10 Option 1 Receiving $1.1 million at the end of five years. Cash flows 11 Check 0 12 13 PV at 10% 14 0 2 3 4 5 15 Option 2 Receiving $200,000 per year for 5 years. + Cash flows 16 Check 0 17 18 19 20 Option 3 Receiving $1 million at the end of 3 years. PV at 10% 0 1 2 3 4 5 4 Cash flows 21 Check 0 22 23 24 Question: Which option should Toni choose to maximize Per. PRESENT VALUE OF $1.00 4% 25 her present value? 26 Answer: Choose Best Option: 0 27 28 29 6% 9% 1 0.9615 0.9434 2 3 0.9246 0.889 4 0.8548 0.89 0.8396 0.7921 5 0.8219 0.7473 8% 10% 15% 0.9259 0.9174 0.9091 0.9009 0.8929 0.8696 0.8573 0.8417 0.8264 0.8116 0.7972 0.7561 0.7938 0.7722 0.7513 0.7312 0.7118 0.6575 0.735 0.7084 0.683 0.6587 0.6355 0.5718 0.6806 0.6499 0.6209 0.5935 0.5674 0.4972 11% 12% 2 4% 0.9615 1.8861 PRESENT VALUE OF A SERIES OF $1.00 CASH FLOWS Per. 6% 0.9434 1.8334 8% 9% 0.9259 0.9174 11% 1.7833 1.7591 10% 0.9091 0.9009 0.8929 0.8696 1.7355 1.7125 1.6901 1.6257 12% 15% 3 2.7751 2.673 2.5771 2.5313 2.4869 2.4437 2.4018 2.2832 4 5 3.6299 3.4651 3.3121 3.2397 3.1699 3.1024 3.0373 2.855 4.4518 4.2124 3.9927 3.8897 3.7908 3.6959 3.6048 3.3522 30