You have just won a lottery of $1 million and you can chooseamong the following...

You have just won a lottery of $1 million and you can choose among the following three payout options. The effective annual interest rate (EAR) is 5%. Option A: $100,000 every two years, starting 2 years from now and ending 20 years from now. Option B: $100,000 a year at the end of the next 10 years, with the first payment one year from today. Option C: $500,000 right now and $500,000 exactly 20 years from now. Please calculate the present values of all three options. Which option should you choose?

Solutions

Expert Solution

Answer:- Option B should be chosen as it as higher present value

Explanation:-

Following is the excel sheet showing the calculation of Present Values :-

Following is the Formula Sheet of above excel sheet for easy understanding of the formulas used:-

jeff jeffy answered 2 years ago

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