Business, 18.02.2020 20:15 greece145

Suppose you win a small lottery and have the choice of two ways to be paid: You can accept the money in a lump sum (Payout Scheme X) or in a series of payments over time (Payout Scheme Y). If you pick Payout Scheme X, you get $2, 900 today. If you pick Payout Scheme Y, you get three payments: $1,000 today, $1,000 one year from today, and $1,000 two years from today. At an interest rate of 5% per year, the winner would be better off accepting Payout Scheme X, since it has the greater present value. At an interest rate of 3% per year, the winner would be better off accepting Payout Scheme Y, since it has the greater present value. Years after you win the lottery, a friend in another country calls to ask your advice. By wild coincidence, she has just won another lottery with the same payout schemes. She must make a quick decision about whether to collect her money under the lump sum payout or the payments over time payout. What is the best advice to give your friend?a. Payout Scheme X is always better. b. Payout Scheme Y is always better. c. It will depend on the interest rate: advise her to get a calculator. d. None of these answers is good advice.

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Suppose you win a small lottery and have the choice of two ways to be paid: You can accept the money...

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