We have often heard that a dollar today is worth more than a dollar tomorrow. In light of what you learned about annuities, what advice would you offer to a current lottery winner regarding the option they should use in determining whether or not they should accept a lump sum payment or the annual payment from the lottery commision? Why or why not ?
We have often heard that a dollar today is worth more than a dollar tomorrow. In light of what you learned about annuities, what advice would you offer to a current lottery winner regarding the option they should use in determining whether or not they should accept a lump sum payment or the annual payment from the lottery commision? Why or why not ?
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:We have often heard that a dollar today is worth more than a
dollar tomorrow. In light of what you learned about
annuities, what advice would you offer to a current lottery
winner regarding the option they should use in determining
whether or not they should accept a lump sum payment or
the annual payment from the lottery commision? Why or why
not ?
Expert Solution
Step 1
As stated above, the dollar today is worth more than a dollar tomorrow because of the inherent capacity of money to earn interest. This concept is known as the time value of money and it is one of the most used concepts in finance.
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