Assume you won a million dollars in the Texas Lottery. You have two options: 1) collect $426,000 now or 2) receive $50,000 a year (end-of-year) for the next 20 years. Which option would you opt for assuming a 10% interest rate? Use an xcel formula to justify your choice.
Assume you won a million dollars in the Texas Lottery. You have two options: 1) collect $426,000 now or 2) receive $50,000 a year (end-of-year) for the next 20 years. Which option would you opt for assuming a 10% interest rate? Use an xcel formula to justify your choice.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Assume you won a million dollars in the Texas Lottery. You have two options: 1) collect
S426,000 now or 2) receive $50,000 a year (end-of-year) for the next 20 years. Which option
would you opt for assuming a 10% interest rate? Use an Excel formula to justify your choice.
Expert Solution
Step 1
Present value: It states that that today's sum of capital is valued more than that of the same capital amount in the future.
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