LottoNow offers a choice of $500 per week for 10 years or a lump sum payment of $220,000 now. If interest is 4.6% compounded semi-annually, determine which option should be chosen, and the economic difference between the two alternatives.
A) Lump sum - benefit of $11,184
B) Lump sum - benefit of $5,434
C) Lump sum - benefit of $1,434
D) Weekly payments - $1,434
E) Weekly payments - $5,434

Question

Quizplus · Accepted Answer

The lump sum payment is the better option because it has a higher present value than the weekly payments. The present value of the weekly payments is $214,566, while the present value of the lump sum payment is $220,000. The economic difference between the two alternatives is $5,434.

LottoNow Offers a Choice of $500 Per Week for 10