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You won the lottery, and can choose one of two (guaranteed) payments: Choice A pays $5,000,000 today; Choice B pays $350,000 at the end of
You won the lottery, and can choose one of two (guaranteed) payments: Choice A pays $5,000,000 today; Choice B pays $350,000 at the end of the next 20 years (first payment is one year from today).
A. If the discount rate is 5%, which option should you choose?
B. If the discount rate is 2%, which option should you choose?
C. At what discount rate would you be indifferent between these two choices? (Hint: When will the two choices have the same present value?)
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