You have won the lottery. There are two payment options for you. The first option is a lump sum payment of $10 million that you will receive immediately. The second option is an annual payment of $1 million for each of the next 12 years
Assume there is no inflation. How would you make a decision between the two options?
You need to compare the present values of the two payment options and select the option with the higher present value. The present value of the lump sum payment is $10 million, but the total present value of the scheduled payments depends on the interest rate that you would use to discount the future payments back to present value.
You might also like to view...
The majority of the value of production in the world economy is produced in
A) all of the developing economies taken together. B) all of Africa and the Middle East taken together. C) China and other Asian developing economies. D) all of the advanced economies taken together. E) all of the emerging market economies taken together.
The basic economic differences among nations throughout history concerning institutions, philosophy, and ideology mainly focus on:
A) unemployment and inflation. B) the ownership of factors of production and how they are coordinated in economic activity. C) the relative shares of agriculture, industry, and service sectors. D) the opportunity for social mobility.