Assume that you went to Las Vegas and hit the jackpot for $5 million.Further assume that you were offered a choice to receive the $5 million today,or receive it in two years.According to one of the principles of finance,which would you take?
A) the $5 million in two years because you would be afraid of spending it all right away
B) the $5 million in two years because it would be worth more than if you would receive it today
C) You would be indifferent as to when you would receive the $5 million.
D) the $5 million today because it would be worth more than if you would receive it in two years

Question

Quizplus · Accepted Answer

The best choice is to take the $5 million today because of the time value of money principle. Money received today is worth more than money received in the future because of the potential return that it could earn if invested. By taking the money today, you could invest it and potentially earn a return on it over the next two years, which would be more valuable than receiving the $5 million in two years.

Assume That You Went to Las Vegas and Hit the Jackpot