Suppose you won the Powerball lottery on January 1st, 2015. You can choose the receive the entire
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Question:
Suppose you won the Powerball lottery on January 1st, 2015. You can choose the receive the entire amount of $400 million either as a lump sum on January 1st, or you can receive four equal annual payments of $102 million paid on January 1st of 2015, 2016, 2017, and 2018. Assume that your lottery winnings are not taxed.
(a) Which option has a higher present value? Assume the interest rate is 2%.
(b) Instead suppose that the interest rate is 1%. Would your answer to part a change?
Related Book For
Fundamentals of Financial Management
ISBN: 978-0324664553
Concise 6th Edition
Authors: Eugene F. Brigham, Joel F. Houston
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