Prizes are often not worth as much as claimed. You have just won a drawing fora $100,000 grand prize. You are given two options for payment of your grand prize.

Option 1 $10,000 per year for ten years

Option 2 $8,000 per year for 5 years and $60,000 in year 6

Your opportunity cost of capital is 7% and all payments are made at the end of each year. What is the true value of Option 1?

What is the true value of Option 2 above?

Which of the two prize options above would you choose?