Question
In: Finance
You win the lottery and have the choice of taking $10 million today or $500,000 per year for the your life
You win the lottery and have the choice of taking $10 million today or $500,000 per year for the your life. Assuming interest rates are 5%, which choice will you make? Please explain.
Solutions
jeff jeffy answered 2 years agoRelated Solutions
You win the lottery! Your choices are Take $25 million today. Take $1 million today and...
You win the lottery! Your choices are
Take $25 million today.
Take $1 million today and $1 million every year for the
next 49 years (a total of $50 million)
a) If the interest rate is 0.1% compounded annually,
which would you prefer?
b) If the interest rate is 4% compounded annually, which
would you prefer?
c) At what annual interest rate would you be indifferent
between the two?
use equation to solve!
You win the lottery! Your choices are Take $25 million today. Take $1 million today and...
You win the lottery! Your choices are
Take $25 million today.
Take $1 million today and $1 million every year for the next 49
years (a total of $50 million)
a) If the interest rate is 0.1% compounded annually, which would
you prefer?
b) If the interest rate is 4% compounded annually, which would
you prefer?
c) At what annual interest rate would you be indifferent between
the two?
please use excel and GOAL SEEK FOR 2C
2) You win the lottery! Your choices are Take $25 million today. Take $1 million today...
2) You win the lottery! Your choices are
Take $25 million today.
Take $1 million today and $1 million every year for the next 49
years (a total of $50 million)
a) If the interest rate is 0.1% compounded annually, which would
you prefer?
b) If the interest rate is 4% compounded annually, which would
you prefer?
c) At what annual interest rate would you be indifferent between
the two?
(Hint: build a spreadsheet to compute the present value of...
15-4 Suppose you win the Florida lottery and are offered a choice of $500,000 in cash or...
15-4 Suppose you win the Florida
lottery and are offered a choice of $500,000 in cash or
a gamble in which you
would get $1 million if a head is flipped but zero if a tail comes
up.
Suppose you take the sure $500,000. You can invest it in either
a U.S. Treasury bond that will return $537,500 at the end of one
year or a common stock that has a 50-50 chance of being either
worthless or worth $1,150,000 at the...
You win the lottery! Your choices are Take a single payment of $20 million today. Take...
You win the lottery! Your choices are Take a single payment of
$20 million today. Take 40 payments of $1 million; first payment
today and then $1 million at the start of every year for the next
39 years a) If the interest rate is 2% compounded annually, which
would you prefer? b) If the interest rate is 10% compounded
annually, which would you prefer? c) At what annually compounded
interest rate would you be indifferent between the two?
Suppose you win a small lottery and have the choice of two ways to be paid:...
Suppose you win a small lottery and have the choice of two ways
to be paid: You can accept the money in a lump sum or in a series
of payments over time. If you pick the lump sum, you get $2,800
today. If you pick payments over time, you get three payments:
$1,000 today, $1,000 1 year from today, and $1,000 2 years from
today.
At an interest rate of 6% per year, the winner would be better
off...
You win a lottery of Rs.1,000,000/-, you have a choice between spending the money now or...
You win a lottery of Rs.1,000,000/-, you have a choice between
spending the money now or putting it in a bank account for 5 years
that pays you 5% per annum. Calculate the opportunity cost of
spending money now?
If you win the lottery and can choose $10,000 today or $2,000 at the end of...
If you win the lottery and can choose $10,000 today or $2,000 at
the end of each year for 6 years, which would you choose? Consider
only the value of the options in your analysis Use an interest rate
of 6%.
a. Take the 2,000 for 6 years b/c it is worth 12,000 in today's
dollars
b. None of the choices are correct
c. Take the 10,000 today because it is worth more than 2,000
spread over 6 years
d....
You have just won the TVM Lottery. You will receive $1 million today plus another 10...
You have just won the TVM Lottery. You will receive $1 million
today plus another 10 annual payments that increase by $670,000 per
year. Thus, in one year you receive $1.67 million. In two years,
you get $2.34 million, and so on.
If the appropriate interest rate is 7.7 percent, what is the value
of your winnings today?
Suppose that you win the Lottery. The stated prize is $402 million. If you agree to...
Suppose that you win the Lottery. The stated prize is $402
million. If you agree to take the payout over 30 years in the form
of an annuity due, then each payment equals the stated prize
divided by 30. The first payment will be made to you immediately,
and the remaining 29 future payments will be paid out annually
(beginning one year from today). Alternatively, you can take the
lump sum payout. This payout is calculated as the present value...
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