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money would Question 12 Congratulations! You have just won the lottery! However, the lottery bureau has just informed you that you can take your winnings
money would Question 12 Congratulations! You have just won the lottery! However, the lottery bureau has just informed you that you can take your winnings in one of two ways. You can elect to receive a payment of $1,000,000 now or a payment of $1,750,000 in five years. a) Assume you can earn 5% on funds that you invest today, how much you have in five years if you take the immediate $1,000,000 payment and invest it? b) Using the same 5% interest rate, what is the present value of the $1,750,000 that you could receive in five years? c) What does this calculation tell you about which lottery payout option you should choose? d) Based on the time value of money, what should be the general rule for making decisions of this nature? (7 marks)
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