Question $2$

$16$ pts

You have won a $$100,000$ lottery However you have to make a choice on how you get paid. This lottery gives you two choices. One, they will pay you nothing today, but pay you $$40,000$ one year from today and $$60,000$ two years from today. Two, you could get paid $$93,000$ today. You want to get the largest amount of money from this lottery based on Present Value. You know that market interest rates for the next two years are $3\mathrm{.}75\%.$ Based on these facts which option would you choose? Show your calculations.

Hint: This requires a present value calculation to compare the two streams of money. Moreover, the equation for present value in years beyond $1$ year is: $PV=\frac{FV}{(1+r{)}^n}$ where $n$ is the year or years from today. Today is year $0.$

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