Question
You just won the lottery! You can either take half of the $65,000,000 in a lump sum today OR you can take yearly payments of
You just won the lottery! You can either take half of the $65,000,000 in a lump sum today OR you can take yearly payments of $3,000,000 for 25 years (at the beginning of each year). Which option has a higher value to you if you can earn 9 percent per year on your investments?
A. You would prefer the lump sum because its present value is $3,032,261 higher than the present value of the payments.
B. You would prefer the payments since their present value is $2,086,275 higher than the lump sum present value.
C You would prefer the payments since their present value is $1,273,033 higher than the lump sum present value.
D. You would prefer the lump sum because its present value is $380,165 higher than the present value of the payments.
E. None of the other choices are within $1,000 of the correct difference.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started