Suppose you win a raffle held at a county fair and are given the choice between two different ways to be paid. You can either accept the money in a lump sum immediately or in a series of payments over time. If you choose the lump sum payout, you receive $2,950 today. If you choose to collect payments over time, you receive three payments: $1,000 today, $1,000 1 year from today, and $1,000 2 years from today. At an interest rate of 10% per year, the winner would be better off accepting the present value. At an interest rate of 12% per year, the winner would be better off accepting the value. since that choice has the greater , since it has the greater present A couple years after you win the raffle, you and your friend are back at the same event. This time, your friend gets lucky and wins the contest, and you both realize the payout schemes are the same as they were back when you won. They now face the decision between collecting their prize as a lump sum or as a series of payments over time. Based on your experience, which piece of advice will be most helpful to your friend?
Suppose you win a raffle held at a county fair and are given the choice between two different ways to be paid. You can either accept the money in a lump sum immediately or in a series of payments over time. If you choose the lump sum payout, you receive $2,950 today. If you choose to collect payments over time, you receive three payments: $1,000 today, $1,000 1 year from today, and $1,000 2 years from today. At an interest rate of 10% per year, the winner would be better off accepting the present value. At an interest rate of 12% per year, the winner would be better off accepting the value. since that choice has the greater , since it has the greater present A couple years after you win the raffle, you and your friend are back at the same event. This time, your friend gets lucky and wins the contest, and you both realize the payout schemes are the same as they were back when you won. They now face the decision between collecting their prize as a lump sum or as a series of payments over time. Based on your experience, which piece of advice will be most helpful to your friend?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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G.222.
Transcribed Image Text:Suppose you win a raffle held at a county fair and are given the choice between two different ways to be paid. You can
either accept the money in a lump sum immediately or in a series of payments over time. If you choose the lump sum
payout, you receive $2,950 today. If you choose to collect payments over time, you receive three payments: $1,000 today,
$1,000 1 year from today, and $1,000 2 years from today.
At an interest rate of 10% per year, the winner would be better off accepting the
present value.
At an interest rate of 12% per year, the winner would be better off accepting the
value.
, since that choice has the greater
since it has the greater present
A couple years after you win the raffle, you and your friend are back at the same event. This time, your friend gets lucky
and wins the contest, and you both realize the payout schemes are the same as they were back when you won. They now
face the decision between collecting their prize as a lump sum or as a series of payments over time. Based on your
experience, which piece of advice will be most helpful to your friend?
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