Lottery prizes sometimes offer the choice between a lump sum now and a series of payments each year for some period of time. Imagine a lottery that offers the prize of either $100,000 today or fifteen annual payments of $10,000 with the first payment received today. If the interest rate is 6.50 percent p.a. which prize is 'better'?

Select one:

a. The annuity is the better prize. It has a present value of $100,138.42 versus the lump sum's present value of $100,000.b. The lump sum is the better prize. It has a present value of $100,000 versus the annuity's present value of $90,138.42.
c. The lump sum is the better prize. It has a present value of $100,000 versus the annuity's present value of $94,026.69.
d. The annuity is the better prize. It has a present value of $145,001.33 versus the lump sum's present value of $100,000.
e. The annuity is the better prize. It has a present value of $101,211.09 versus the lump sum's present value of $100,000.

Answer rating: 100% (QA)

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