Congratulations! You have won the $ 1 million lottery grand prize. You have been presented with...

Congratulations! You have won the $ 1 million lottery grand prize. You have been presented with several payout alternatives, and you have to decide which one to accept.

The alternatives are as follows:

$1 million today

$1.2 million lump- sum in two years.

$1.5 million lump-sum in five years.

$2 million lump-sum in eight years.

Your cousin, s stockbroker, advises you that over the long-term you should be able to earn ten percent on an investment portfolio.

You are intrigued by the choice of collecting the prize money today or receiving double the amount of money in the future. Which payout option should you choose?

Since the PV is less than the 175000 payment to be made today, it makes sense to appeal. The best option would be to take the 1 million today.

Expert Solution

The answer is as follows:

jeff jeffy answered 2 years ago

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