Present Value: The value of today’s amount expected to be paid or received in the future at a compound interest rate is called as present value. To determine: the payout option that Mr. A would select.

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Dmitri just won the lottery and must choose between three award options: 1. A lump sum of $20,000,000 received today 2. 15 end-of-year payments of $2,500,000 3. 40 end-of-year payments of $1,800,000 For each option in the table, indicate which values to enter for each variable in your financial calculator. Option 1 Option 2 Option 3 Lump Sum Payment 15 Payments 40 Payments No. of Periods I/YR V = 15 ▼ I/YR V = 40 Annual payment %3D %3D Future Value FV= 0 FV = 0 Present Value $20,000,000 Assume the interest rate is 8.00%, entered as 8 on your financial calculator. Note: Take the absolute value of the present value when answering this question. Using the table you just filled out, along with a financial calculator, yields a present value for option 2 of approximately and a present value for option 3 of approximately (when the interest rate is 8.00%). Based on this, Dmitri should choose option if he seeks to maximize present value.

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Chapter 14, Problem 14.3CP

To determine

Present Value: The value of today’s amount expected to be paid or received in the future at a compound interest rate is called as present value.

To determine: the payout option that Mr. A would select.

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