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A. You have been asked to evaluate whether a state lottery is being consistent in the choices it has offered to winners over the past
A. You have been asked to evaluate whether a state lottery is being consistent in the choices it has offered to winners over the past year. Nothing changed over the year in terms of rates of return. Winners of the lottery are either paid a lump-sum or paid a series of regular payments for a period of time. Winner 1: Receive annual payments of $12,000 for 40-years. Payments starting at the end of the year. Alternatively they can be paid a single sum of $130,000 now. Winner 2: Receive annual payments of $12,000 for 40-years. Payments starting at the beginning of the year. Alternatively they can be paid a single sum of $125,000 now. Given what was offered to Winner 1 is the offer to Winner 2 consistent? Explain - you don't have to do any calculations. (3 marks) B. "It doesn't matter when a perpetuity starts - at the beginning or end of the year. It is perpetual so the present value will be the same either way". Explain whether this is correct
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