Question
You won the lottery! However, in order to receive your first prize, you need to choose between the following pay-out options. The APR is 20%,
You won the lottery! However, in order to receive your first prize, you need to choose between the following pay-out options. The APR is 20%, compounded semi-annually.
Option A: You will receive a payment of $0.05 immediately, which will then triple each year for 27 years, starting in year 1 (t=1).
Option B: You will receive 101 payments starting in year 6 (t=6), paid out semi-annually of $195,000 each.
Option C: You will receive $750,000 in year 1 (t=1), and each following year you receive half the amount from the year before, forever. Using your time value of money tools, calculate the present value for each of these options and indicate which one you would select [Avoid using Excel initially OK to check your answer!].
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