Pat Won a Lottery with Two Options: $1 Million Per

question 39

Multiple Choice

Pat won a lottery with two options: $1 million per year, at the beginning of the year, for 25 years or a single cash price of $18 million. If low-risk investments can earn 2.5% compounded annually, which option should Pat choose and what is the advantage in terms of current economic value?

• A) Lump sum has an advantage of $885 000
• B) 25 year annuity has an advantage of $885 000
• C) 25 year annuity has an advantage of $424 000
• D) Lump sum has an advantage of $424 000
• E) Both options are the same

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Definitions:

Coordinate Labour

The organization and alignment of worker efforts and tasks to ensure efficient and effective achievement of collective goals.

Achieve Goals

The process of setting targets and successfully reaching them through planning and effort.

Top Executives

Individuals who hold the highest management positions in an organization, responsible for overall strategic decisions.

Environmental Constraints

Refers to the physical or legal limitations that impact the operations and decisions of an organization or individual.