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A lottery is advertising a $5million prize .The winner can choose between a lump sum payment of $2.5 million or 25 annual payments of 200,000.you
A lottery is advertising a $5million prize .The winner can choose between a lump sum payment of $2.5 million or 25 annual payments of 200,000.you can best explain this to a friend as
(1) Deceptive advertising because the future value of $5 million after 5 years is much higher.
(2) Correct ,because you are indifferent between a $2.5million lump sum and the $200,000 annuity for 25 years
(3)deceptive advertising ,because the present value of lump sum option is only $2.5 million
(4)correct, because $200,000*25 annual payments =$5million
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