Congratulations! You have just won the lottery! However, the lottery bureau has

Question

Congratulations! You have just won the lottery! However, the lottery bureau has just informed you that you can take your winnings in one of two ways. Choice X pays $1,000,000. Choice Y pays $1,750,000 at the end of five years from now. Using a discount rate of 5 percent, based on present values, which would you choose? Using the same discount rate of 5 percent, based on future values, which would you choose? What do your results suggest as a general rule for approaching such problems? (Make your choices based purely on the time value of
money.)

Please leave a detailed answer. Thanks you !

Explanation / Answer

Using a discount rate of 5 percent, based on present values, which would you choose?

Ans:- PRESENT VALUE OF CHOICE-X(AT t = 0) = 1000000

PRESENT VALUE OF CHIOCE

Using a discount rate of 5 percent, based on present values, which would you choose?

Ans:- PRESENT VALUE OF CHOICE-X(AT t = 0) = 1000000

PRESENT VALUE OF CHIOCE

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