John has just won the lottery! He has two options to receive the lottery winnings....
70.2K
Verified Solution
Link Copied!
Question
Finance
John has just won the lottery! He has two options to receive the lottery winnings. Option 1 is that he would receive $25,000 forever. Even better, this payment will grow at 2% per year into perpetuity. Sadly however, this payment won't begin until 7 years from today. Option 2 is that he would receive $15,000 forever. This payment will grow at 2.5% per year into perpetuity. Sadly however, this payment won't begin until 2 years from today. If he assumes a discount rate of 3.5% and he is indifferent as to when payments actually begin, which should he chose as of today and why?
He should choose Option 1 because it is $166,666.67 better than Option 2. He should choose Option 2 because it is $166,666.67 better than Option 1. He should choose Option 1 because it is $93,440.96 better than Option 2. He should choose Option 2 because it is $93,440.96 better than Option 1.
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
- Unlimited Question Access with detailed Answers
- Zin AI - 3 Million Words
- 10 Dall-E 3 Images
- 20 Plot Generations
- Conversation with Dialogue Memory
- No Ads, Ever!
- Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Other questions asked by students
StudyZin's Question Purchase
1 Answer
$0.99
(Save $1 )
One time Pay
- No Ads
- Answer to 1 Question
- Get free Zin AI - 50 Thousand Words per Month
Unlimited
$4.99*
(Save $5 )
Billed Monthly
- No Ads
- Answers to Unlimited Questions
- Get free Zin AI - 3 Million Words per Month
*First month only
Free
$0
- Get this answer for free!
- Sign up now to unlock the answer instantly
You can see the logs in the Dashboard.