Jason just won the Island Luck grand prize give away of $1,200,000. He is offered $100,000 a year for twelve (12) years or receive a lump sum of $725,000 right away. If he can earn 7%, which alternative is better? Include the working
Jason just won the Island Luck grand prize give away of $1,200,000. He is offered $100,000 a year for twelve (12) years or receive a lump sum of $725,000 right away. If he can earn 7%, which alternative is better? Include the working
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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Jason just won the Island Luck grand prize give away of $1,200,000. He is offered $100,000 a year for twelve (12) years or receive a lump sum of $725,000 right away. If he can earn 7%, which alternative is better? Include the working
Expert Solution
Step 1
The value of money decreases with time because of inflation. The money received today can be invested and has growth opportunities whereas the amount received in the future losses the growth opportunity. It is the reason the value of money received in the future is always lower.
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