You are considering two lottery payment streams. Choice A pays $1,000 today and choice B pays
$1,750 at the end of ﬁve years from now. Using a discount rate of 5%, based on present values,
which would you choose? Using the same discount rate of 5%, based on future values, which would
you 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.)

Question

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The Answer of You are considering two lottery payment streams. Choice A pays $1,000 today and choice B pays
$1,750 at the end of ﬁve years from now. Using a discount rate of 5%, based on present values,
which would you choose? Using the same discount rate of 5%, based on future values, which would
you 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.)

You Are Considering Two Lottery Payment Streams