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Calculate the present value of the two options

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Question - Paul has just won the Flyball Lottery. He has two options for receiving his prize. The first option is to accept a $133,000 cash payment today. The second option is to receive $19,500 at the end of each of the next 19 years and a $37,500 lump sum payment in the 20th year. Paul can invest money at a 8% rate.

(a) Calculate the present value of the two options. Which option should Paul choose to receive his winnings?

(b) If Paul could invest money at 11%, calculate the present value of the two options. Which option should he choose?

Reference no: EM133089426

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