To determine whether a lottery winner would prefer to receive the money in a single lump sum immediately or receive an equal amount over a period of years,you would use which type of time value of money calculation?
A)The future value of a single amount
B)The present value of a single amount
C)The future value of an annuity
D)The present value of an annuity

Question

Quizplus · Accepted Answer

To compare receiving a lump sum immediately versus receiving equal amounts over a period of years, the relevant calculation is the present value of an annuity. This calculation will determine the current value of the future payments, allowing for a fair comparison to the lump sum amount. Options A and C are not relevant to this scenario as they deal with single amounts or multiple future payments respectively. Option B is not useful as it calculates the current value of a future payment, but doesn't take into account the option for multiple payments. Therefore, the best choice is D - the present value of an annuity.

To Determine Whether a Lottery Winner Would Prefer to Receive