A lottery prize gives the winner a choice between (1) $10,000 now and another $10,000 in 5 years, or (2) four $7,000 payments: now and in 5, 10, and 15 years.
a) Which alternative should the winner choose if money can earn 6% compounded annually? In current dollars, what is the economic advantage of the preferred alternative?
b) Which alternative should the winner choose if money can earn 8.5% compounded annually? In current dollars, what is the economic advantage of the preferred alternative?

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The Answer of A lottery prize gives the winner a choice between (1) $10,000 now and another $10,000 in 5 years, or (2) four $7,000 payments: now and in 5, 10, and 15 years.
a) Which alternative should the winner choose if money can earn 6% compounded annually? In current dollars, what is the economic advantage of the preferred alternative?
b) Which alternative should the winner choose if money can earn 8.5% compounded annually? In current dollars, what is the economic advantage of the preferred alternative?

A Lottery Prize Gives the Winner a Choice Between (1)