Business, 03.07.2020 19:01 angieboyd1pe3jme

Congratulations, you have won the California State Lottery. Lottery officials are giving you a choice of payment options. You will need to choose from one of the following streams. Assume at 5% interest rate for all scenarios. Option 1

Immediate payment of $1,000,000

Option 2

10 annual installments of $120,000

Option 3

$2,650,000 paid at the end of 20 years

Option 4

20 annual installments of $80,000

Option 5

5 annual installments of $100,000 plus a lump sum of $750,000 at the end of 5 years

Consider these options without referencing the calculation methods presented in the Chapter 12 Appendix.

Which options will result in receiving the most cash? Which option do you think you should choose and why? Which will be the least favorable option and why?

Answers: 3

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