John Doe Wins the Lottery and May Pick from the Following

question 151

Multiple Choice

John Doe wins the lottery and may pick from the following three choices:
Take $750,000 now.
Take $1,000,000 ten years from now.
Take $90,000 at the end of this year, and at the end of each following year for ten installments
In total.
Assume that John Doe uses a discount rate of 5% to evaluate his choices. If he selects the third option, how much is the present value of that alternative?
$\begin{array}{|c|c|c|c|c|c|c|}\hline \text {Present}\\\text {Value of}\\\text {an}\\\text {Annuity of}\\\$ 1\\\hline&5\%&6\%&7\%&8\%&9\%&10\%\\\hline 1& 0.952 & 0.943 & 0.931 & 0.926 & 0.917 & 0.909 \\\hline2 & 1.859 & 1.833 & 1.808 & 1.783 & 1.759 &1.736 \\\hline 3& 2.723 & 2.673 & 2.624 & 2.577 & 2.531 &2.487 \\\hline 4& 3.546 & 3.465 & 3.387 & 3.312 & 3.240 &3.170 \\\hline5 & 4.329 & 4.21 & 4.100 & 3.993 & 3.890 &3.791 \\\hline6 & 5.076 & 4.917 & 4.767 & 4.623 & 4.486&4.355 \\\hline7 & 5.786 & 5.581 & 5.389 & 5.206 & 5.033 &4.868 \\\hline 8& 6.463 & 6.210 & 5.971 & 5.747 & 5.535 &5.335 \\\hline 9 & 7.108 & 6.80 & 6.515 & 6.247 & 5.995 &5.759 \\\hline 10& 7.722 & 7.360 &7.024 & 6.710 & 6.418 &6.145 \\\hline\end{array}$

• A) $814,000
• B) $900,000
• C) $694,980
• D) $798,000

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