Jean won a lottery in the beginning of this year. She is entitled to a lump sum
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Question:
Jean won a lottery in the beginning of this year. She is entitled to a lump sum cash prize of $700,000 which must be claimed in 1 year. She is currently overseas so she can only claim this prize at the end of this year. She can also opt to receive $60,000 paid annually for 12 years, starting today.
Jean determines her required return by considering the interest of savings account which pays a quoted rate (APR) of 4%, compounded monthly and an investment portfolio which pays a quoted return (APR) of 5% p.a.
Q:
(a) Based on the above information, what is the required return used in determining the best option ?
(b) Which option should she choose ?
Related Book For
Data Analysis and Decision Making
ISBN: 978-0538476126
4th edition
Authors: Christian Albright, Wayne Winston, Christopher Zappe
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