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You have just won a lottery of $1 million and you can choose among the following three payout options. The effective annual interest rate (EAR) is 5%.

Option A: $200,000 right now and $100,000 every two years, starting 2 years from now and ending 16 years from now.

Option B: $100,000 a year at the end of the next 10 years, with the first payment one year from today.

Option C: Twenty annual payments of $40,000 and a 21st payment of $200,000. The first payment is made right now. The 21st payment is due 20 years from now.

Please calculate the present values of all three options. Which option should you choose?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92653490

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