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# Three choices for lottery winnings: lump sum, ordinary annuity, annuity due

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4. You have just won the lottery and you have three choices to choose from as to how you will receive your winnings.

Choice I: You would receive a lump sum payment of \$75,000 today.
Choice II: You would receive \$10,000 at the end of each of the next 8 years
Choice III: You would receive \$10,000 at the beginning of each of the next 8 years.

You would want to choose the best choice meaning the choice with the greatest present value. Your discount rate is 8% under annual compounding

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See the attached Excel file.

First of all it should be noted that receiving money earlier is always better than receiving the same amount later so ...

#### Solution Summary

In a narrative statement backed up with Excel calculations, the response clearly explains the choices.

\$2.49