You win the lottery and are offered the following choices. The appropriate discount rate is 7%. How much is each worth? Which would you choose?   a. $3M today and $3M exactly 3 years from today   b. $2M a year for 4 years, with the first payment starting exactly one year from today c. $350K a year forever, with the first payment starting one year from today

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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You win the lottery and are offered the following choices. The appropriate discount rate is 7%. How much is each worth? Which would you choose?

 

a. $3M today and $3M exactly 3 years from today

 

b. $2M a year for 4 years, with the first payment starting exactly one year from today

c. $350K a year forever, with the first payment starting one year from today

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We need to compute the present value of all payments and compare the PV of all options.

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