Suppose you win a raffle held at a minor league baseball game and are given the choice between two different ways to be paid. You can either accep the money in a lump sum immediately or in a series of payments over time. If you choose the lump sum payout, you receive $3,000 today. If you choose to collect payments over time, you receive three payments: $1,000 today, $1,000 1 year from today, and $1,000 2 years from today. At an interest rate of 6% per year, the winner would be better off accepting the value. At an interest rate of 10% per year, the winner would be better off accepting since that choice has the greater presen The lump sum is always better. The payments over time are always better. O It will depend on the interest rate; advise her to get a calculator. None of these answers is good advice. since it has the greater present value A couple years after you win the raffle, you and your friend are back at the same event. This time, your friend gets lucky and wins the contest, and you both realize the payout schemes are the same as they were back when you won. They now face the decision between collecting their prize as a ump sum or as a series of payments over time. Based on your experience, which piece of advice will be most helpful to your friend?
Suppose you win a raffle held at a minor league baseball game and are given the choice between two different ways to be paid. You can either accep the money in a lump sum immediately or in a series of payments over time. If you choose the lump sum payout, you receive $3,000 today. If you choose to collect payments over time, you receive three payments: $1,000 today, $1,000 1 year from today, and $1,000 2 years from today. At an interest rate of 6% per year, the winner would be better off accepting the value. At an interest rate of 10% per year, the winner would be better off accepting since that choice has the greater presen The lump sum is always better. The payments over time are always better. O It will depend on the interest rate; advise her to get a calculator. None of these answers is good advice. since it has the greater present value A couple years after you win the raffle, you and your friend are back at the same event. This time, your friend gets lucky and wins the contest, and you both realize the payout schemes are the same as they were back when you won. They now face the decision between collecting their prize as a ump sum or as a series of payments over time. Based on your experience, which piece of advice will be most helpful to your friend?
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter16: Information, Risk, And Insurance
Section: Chapter Questions
Problem 4RQ: Why might it be difficult for a buyer and seller to agree on a price when imperfect information...
Related questions
Question
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics 2e
Economics
ISBN:
9781947172364
Author:
Steven A. Greenlaw; David Shapiro
Publisher:
OpenStax
Principles of Economics 2e
Economics
ISBN:
9781947172364
Author:
Steven A. Greenlaw; David Shapiro
Publisher:
OpenStax