Business, 27.01.2021 20:20 angelamalcom2913
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 payout, you get $3,000 today. If you pick the payments over time payout, you get three payments: $1,000 today, $1,000 one year from today, and $1,000 two years from today.
At an interest rate of 6% per year, the winner would be better off accepting the , since it has the greater present value.
At an interest rate of 9% per year, the winner would be better off accepting , since it has the greater present value.
Years after you win the lottery, a friend in another country calls to ask your advice. By wild coincidence, she has just won another lottery with the same payout schemes. She must make a quick decision about whether to collect her money under the lump sum or the payments over time. What is the best advice to give your friend?
a. The lump sum is always better.
b. The payments over time are always better.
c. It will depend on the interest rate; advise her to get a calculator.
d. None of these answers is good advice.
Answers: 2
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Suppose you win a small lottery and have the choice of two ways to be paid: You can accept the money...
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