Consider the decision you might have to make if you won a state lottery worth $105 million.

Question:

Consider the decision you might have to make if you won a state lottery worth $105 million. Which would you choose: a lump-sum payment of $54 million today or a payment of $3.5 million each year for the next 30 years? Which should you choose?
a. If your opportunity cost is 6 percent, which alternative should you select?
b. At what opportunity cost would you be indifferent between the two alternatives?

Opportunity Cost
Opportunity cost is the profit lost when one alternative is selected over another. The Opportunity Cost refers to the expected returns from the second best alternative use of resources that are foregone due to the scarcity of resources such as land,...