Question

You have just won the state lottery and have two choices for collecting your winnings. You can collect $113,000 today or receive $21,700 at the end of each year for the next seven years. A financial analyst has told you that you can earn 8% on your investments.



Required:

1. Calculate the present value of both the options

Answer 1

Answer: 21,700 a year for 7 years

Explanation:

If you do 21,700 a year for the next 7 years you would get 115,00 in total and although you would have to wait, you wouldn't spend all your money at once and you it will financially over the years if you chose 21,700 a year for 7 years, For all we know next year you could get robbed but you would get the 21,00 and spend it on a apartment or rent a room, or if you decide to start a business, use your money to do that.