Raymund just won the lottery. He can get his prize either in the form of $40,000 at the end of each of the next 25 years (that is, $1,000,000 over 25 years) or as a single amount of $500,000 paid immediately. If he expects to be able to earn 5% annually on his investments over the next 25 years, ignoring taxes and other considerations, which alternative should he take? Why? Would his decision in part a change if he could earn 7% rather than 5% on his investments over the next 25 years? Why?
Raymund just won the lottery. He can get his prize either in the form of $40,000 at the end of each of the next 25 years (that is, $1,000,000 over 25 years) or as a single amount of $500,000 paid immediately. If he expects to be able to earn 5% annually on his investments over the next 25 years, ignoring taxes and other considerations, which alternative should he take? Why? Would his decision in part a change if he could earn 7% rather than 5% on his investments over the next 25 years? Why?
Chapter4: Time Value Of Money
Section: Chapter Questions
Problem 6PROB
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Problem 9: : Value of an
Raymund just won the lottery. He can get his prize either in the form of $40,000 at the end of
each of the next 25 years (that is, $1,000,000 over 25 years) or as a single amount of
$500,000 paid immediately.
- If he expects to be able to earn 5% annually on his investments over the next 25 years,
ignoring taxes and other considerations, which alternative should he take? Why?
- Would his decision in part a change if he could earn 7% rather than 5% on his investments
over the next 25 years? Why?
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