Congratulations! You Have Just Won the Lottery! However,the Lottery Bureau

question 42

Essay

Congratulations! You have just won the lottery! However,the lottery bureau has just informed you that you can take your winnings in one of two ways.You can elect to receive a payment of $1,000,000 now or a payment of $1,750,000 in five years.Assume you can earn 5% on funds that you invest today.How much money would you have in five years if you take the immediate $1,000,000 payment and invest it? What does this tell you about the wisdom of selecting the immediate payment versus the future payment? Using the same 5% interest rate,what is the present value of the $1,750,000 that you could receive in five years? What does this calculation tell you about which lottery payout option you should choose? What do your results suggest as a general rule for approaching such problems? (Make your choices based purely on the time value of money.)

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Definitions:

Social Comparison

The desire to evaluate one’s own behavior, abilities, expertise, and opinions by comparing them to those of others.

Functional Play

A type of play mainly observed in children, involving activities that use repetitive muscle movements, often focusing on the use of objects.

Lego

A brand of plastic construction toys that are interlocking, allowing for the building of various objects and structures.

Skipping

Skipping can refer either to a physical jumping movement often seen in children's play or to omitting or bypassing something in a sequence.