Comparing Options Using Present Value Concepts
After hearing a knock at your front door, you are surprised to see the Prize Patrol from a large, well-known magazine subscription company. It has arrived with the good news that you are the big winner, having won “$20 million.” You have three options:
(a)Receive $1 million per year for the next 20 years.
(b)Have $8 million today.
(c)Have $2 million today and receive $700,000 for each of the next 20 years.
Your financial adviser tells you that it is reasonable to expect to earn 10 percent on investments.
Required:
1.Calculate the present value of each option.
2.Determine which option you prefer and explain your reasoning.
We need at least 10 more requests to produce the solution.
0 / 10 have requested this problem solution
The more requests, the faster the answer.