Choice with the greatest present value


Problem:

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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Finance Basics: Choice with the greatest present value
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