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You have won the lottery at the beginning o f this year. You have the option of receiving a lump sum payment (now) of $5,000
You have won the lottery at the beginning o f this year. You have the option of receiving a lump sum payment (now) of $5,000 or receiving the cash over three years respectively: Year 1 $2,000; Year 2 $2,500; Year $3,000. You currently receive a risk-free rate of return of 3% in your high yield savings bank account. When considering the time value of money, what option is more valuable. Hint: Create a cash flow schedule for the yearly payments and compare against the future value of the lump sum payment received today.
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