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Suppose that Deborah just won the lottery and must choose between three award options: 1. A lump sum of $40,000,000 received today 2. 15 end-of-year
Suppose that Deborah just won the lottery and must choose between three award options: 1. A lump sum of $40,000,000 received today 2. 15 end-of-year payments of $5,000,000 3.40 end-of-year payments of $3,600,000 Assume the interest rate is 8.00%, entered as 8 on your financial calculator Note: Take the absolute value of the present value when answering this question Using a financial calculator yields a present value for option 2 of approximately and a present value for option 3 of approximately (when the interest rate is 8.00%). Based on this, Deborah should choose option It she seeks to maximize present value Now assume the interest rate is 9.00%, entered as 9 on your financial calculator Note: Take the absolute value of the present value when answering this question. Using the table you just filled out and a financial calculator, yields a present value for option 2 of approximately and a present value for option 3 of approximately (when the interest rate is 9.00%). Based on this, Deborah should choose option she seeks to maximize present value f Assume the interest rate is 10.00%, entered as 10 on your financial calculator. Note: Take the absolute value of the present value when answering this question. Using the table you just filled out and a financial calculator, yields a present value for option 2 of approximately value for option 3 of approximately (when the interest rate is 10.00%). Based on this, Deborah should choose option she seeks to maximize present value. and a present As the interest rate increases, options 2 and 3 become attractive, relative to option 1
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