As the Winner of the Housecleaners Sweepstakes, You Are Entitled

question 12

Short Answer

As the winner of the Housecleaners sweepstakes, you are entitled to one of the following prizes:
A. $999,999 immediately.
B. $100,000 per year forever.
C. $180,000 per year for the next 10 years starting immediately.
D. $400,000 payable every 2 years over 20 years.
E. $39,000 next year growing by 6% forever.
In terms of present values, which prize should be chosen if r = 9%?

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Definitions:

Best Alternative

The most advantageous option available to a party in negotiations if the current talks fail.

Interdependent Parties

Entities or individuals that rely on each other and are mutually influenced by one another’s actions in pursuing their goals or interests.

Resolve Differences

The process of finding amicable solutions to disputes between parties with opposing viewpoints.

Interests

Activities, subjects, or pursuits that capture attention, engagement, or concern.