You have just won the lottery and you can choose between the following payout options. The...

 

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You have just won the lottery and you can choose between the following payout options. The annual interest rate (EAR) is 10%. a) $100,000 right now and $60,000 every two years starting 3 years from now and ending 17 years from now (i.e., payments are at t = 0, t = 3, t = 5, ..., t = 15, t = 17). 24, 25). = 1, 2, b) $60,000 a year for 25 years with the first payment one year from today (i.e., payments are at t c) 25 annual payments of $45,000 and a 26th payment of $299,000. The first payment is made right now, and the $299,000 payment is made one year after the last $45,000 payment. How much more is the best option worth today relative to the worst option? You have just won the lottery and you can choose between the following payout options. The annual interest rate (EAR) is 10%. a) $100,000 right now and $60,000 every two years starting 3 years from now and ending 17 years from now (i.e., payments are at t = 0, t = 3, t = 5, ..., t = 15, t = 17). 24, 25). = 1, 2, b) $60,000 a year for 25 years with the first payment one year from today (i.e., payments are at t c) 25 annual payments of $45,000 and a 26th payment of $299,000. The first payment is made right now, and the $299,000 payment is made one year after the last $45,000 payment. How much more is the best option worth today relative to the worst option?

Answer rating: 100% (QA)

To compare the payout options we need to calculate the present value PV of each option using the giv... View the full answer