Suppose you just won a lottery of $100 million, that will can be cashed out over 5 years ($20 million per year) starting from 2023 and ending in 2027. The ongoing interest rate is 10% and is assumed to be fixed for that 5-year duration. If you choose to withdraw today instead of receiving that 5-year income stream, you will receive only $65 million. Which option will give you higher income? Calculate and state your argument.

Suppose you just won a lottery of $100 million, that will can be cashed out over 5 years ($20 million per year) starting from 2023 and ending in 2027. The ongoing interest rate is 10% and is assumed to be fixed for that 5-year duration. If you choose to withdraw today instead of receiving that 5-year income stream, you will receive only $65 million. Which option will give you higher income? Calculate and state your argument.

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter4: Time Value Of Money

Section: Chapter Questions

Problem 34P

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