(Answered) You have a winning lottery ticket for 100000 you never will

Management Studies

You have a winning lottery ticket for $100,000. You never will get the full $100,000. The State offers you three options. The first pays you $80,000 up front for the entire amount. The second pays you the winnings over a three-year period. The last option pays you a large payment today with small payments in the future.

The payment options are detailed in the table below:

(a) Calculate the present value of each payment option, assuming the interest rate is 12%.

(b) Then, calculate the present values based on an interest rate of 5%.

Amount paid today	80000	22000	50000
Amount paid after 1 year	0	22000	12000
Amount paid after 2 years	0	22000	12000
Amount paid after 3 years	0	22000	12000

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