Question: You have won a mega jackpot playing the slot machines in

You have won a mega-jackpot playing the slot machines in Las Vegas. You have to choose between two payout plans. The first would pay you $7 million immediately. The second would pay you $1 million per year for 10 years, with the first payment occurring at the end of period 1, and the last payment occurring at the end of period 10.
a.) If your personal discount rate is 5%, which plan has a higher economic value?
b.) If your personal discount rate is 10%, which plan has a higher economic value?

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  • CreatedAugust 07, 2015
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