Question
You win a lottery and have to choose between the following payment schedules: Date 1 2 3 4 5 Option I $1,000,000 $1,000,000 $1,000,000 $1,000,000
You win a lottery and have to choose between the following payment schedules:
| Date | 1 | 2 | 3 | 4 | 5 |
| Option I | $1,000,000 | $1,000,000 | $1,000,000 | $1,000,000 | $1,000,000 |
| Option II | $500,000 | $750,000 | $1,000,000 | $1,250,000 | $1,500,000 |
Which of the following is true regarding the values of the two options? (Note, the PowerBall lottery changed from a payment similar to Option I to a payment similar to Option II a few years ago.)
a) The present value of Option II is lower. b) The value of the two options are equal because the total cash flows are the same. c) The future value of Option II is higher. d) The present value of Option II is higher.
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HBR Guide To Finance Basics For Managers
Authors: Harvard Business Review
1st Edition
1422187306, 978-1422187302
