You Win the Lottery and Are Given the Option of Receiving

question 242

Multiple Choice

You win the lottery and are given the option of receiving $250,000 now or an annuity of $25,000 at the end of each year for 30 years. Which of the following is correct? (Ignore taxes.)

• A) You cannot choose between the two without first calculating future values.
• B) You will always choose the lump regardless of interest rates.
• C) You will choose the annuity payment if the interest rate is 7%.
• D) You will always choose the annuity.
• E) Comparing the future value of the two alternatives will lead to a different decision than you will reach from a comparison of the present values.

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