Question

Assume you win the lottery and have a choice to receive your winnings one of two ways. Option 1: Payments of $50,000 per year for each of the next 5 years Option 2: A single payment of $200,000 immediatelyWhich of the following statements is most correct?A Option 1 is preferred over Option 2.B Option 2 is preferred over Option 1.C Option 1 and Option 2 are equivalent.D The value of Option 1 is greater than the value of Option 2 because the total cash flow is greater.E There is not enough information to answer this question.

Answer 1

Answer:

Option D is correct.

Explanation:

In the option 1 we receive $250,000 but in the second option we receive total amount that is $200,000. But their is an issue which is time value money. If the inflation is lower then it is possible we receive higher value in real terms. If we have an opportunity to invest in a project or company with required return provided then it would be the best option to invest in. Overall option D is correct because the level of question is High School.f