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You have won a lottery and can choose to receive payment under one of the following two arrangements:

(1) $250,000 every year forever, with the first payment occurring in 2 years, or

(2) a fixed payment of $500,000 every year for 10 years, with the first payment

occurring next year and the last payment at the end of Year 10.

Assume the relevant yearly rate is 5%. Which arrangement will provide you the highest value today? Explain with supporting You have won a lottery and can choose to receive payment under one of the following two arrangements:

(1) $250,000 every year forever, with the first payment occurring in 2 years, or

(2) a fixed payment of $500,000 every year for 10 years, with the first payment

occurring next year and the last payment at the end of Year 10.

Assume the relevant yearly rate is 5%. Which arrangement will provide you the highest value today? Explain with supporting calculations.

Answer rating: 100% (QA)

The arrangement that will provide you the highest value today is Option 2 the fixed payment of 50... View the full answer