You have won the lottery and have been given the choice of receiving $5 million today or $10 million after 10 years. Assume that the interest rate remains fixed at 10% per year for the entire 10-year period. You should choose:
A)$10 million after 10 years, since this is more than you would get if you invested $5 million for 10 years at an annual rate of interest of 10%.
B)$10 million after 10 years, since that is a larger amount than the present value of $5 million paid after 10 years.
C)$5 million today, since it would be worth more than $10 million after 10 years if the $5 million earned interest at the rate of 10% per year.
D)$10 million after 10 years, since it is the larger amount.

Question

Quizplus · Accepted Answer

If you invest $5 million today at a 10% annual interest rate, it will grow to approximately $12.97 million in 10 years, which is more than $10 million.

You Have Won the Lottery and Have Been Given the Choice