Penny just won the state lottery that offers a choice of payments.She may opt for either receiving $1,000,000 today or $2,000,000 at the end of ten years.If she can invest her funds at 5% annually,which is the better choice?
A) The later payment since $1,000,000 invested at 5% for ten years will be worth $1,500,000.
B) The immediate payment since the present value of the $2,000,000 payment is $1,200,000.
C) The earlier payment since the future value of $1,000,000 in ten years is $1,628,894.
D) The earlier payment since the present value of the $2,000,000 payment is $876,000.
E) The later payment since the present value of the $2,000,000 payment is $1,227,827.

Question

Quizplus · Accepted Answer

PV = 11ea7fdb_fc2b_b6e1_a768_d5c9f571dd93_TB2902_00 PV = 11ea7fdb_fc2b_b6e2_a768_0df0b4188282_TB2902_00 = $1,227,827
Using a financial calculator:
N = 10, I/Y = 5, PMT = 0, FV = -2,000,000, cpt PV = $1,227,826.51

Penny Just Won the State Lottery That Offers a Choice