Question

You have won the lottery and your prize is $1,000,000. Since the parentheses on said that the winner had the option of taking a lump sum or an annuity you have to decide the best deal for you. Your choices are: 1) $1,000,000 in 10 years, present Valve 2) 10 annual payments of $100,000 which begin in one year, Nesen vowe Or, 3) a lump sum of $675,000. You figure you could earn 8% on your money. Ignoring taxes, which is the better deal? DO

Answer 1

Option which has higher present value of cash flow is better deal.
1)	Present value	=-pv(rate,nper,pmt,fv)			Where,
		$       4,63,193			rate	=	8%
					nper	=	10
					pmt	=	0
					fv	=	$       10,00,000
2)	Present value	=-pv(rate,nper,pmt,fv)			Where,
		$       6,71,008			rate	=	8%
					nper	=	10
					pmt	=	$          1,00,000
					fv	=	0
3)	Present value	$       6,75,000
Option 3 has higher present value.So, deal to receive a lump sum of $ 675,000 is a better deal.