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PROBLEM CHAPTER 8 You have won a lottery. As you are ready to claim your $5,000 reward, the lottery agent clarifies to you that you
PROBLEM CHAPTER 8 You have won a lottery. As you are ready to claim your $5,000 reward, the lottery agent clarifies to you that you will get $5,000, but the payment will be spread over time. He proposes four scenarios for your consideration. You are somewhat surprised as you winter holiday in Hawaii and make a small investment into a company that you have expected to collect a $5,000 to pay down your student loan, pay for you reading week have 24 hours to make a decision. Please review the options below and decide which one followed for many years, but never had sufficient cash to invest. You are told that you you would choose. a) You receive $3,000 immediately; b) You receive five equal installments of $1,000 at the end of each year, c) You receive a payment of $2,000 right now, the next one equal to $1,000 one year from now, and $3,000 at the end of year five; d) You will receive 10 equal installments of $750 for the next ten years. You observe the market and you estimate that the going market interest rate is equal to 10 percent compounded annually
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