I have $300,000 to invest after winning a lottery and have the following offers

ID: 2376241 • Letter: I

Question

I have $300,000 to invest after winning a lottery and have the following offers from various people.

1. $50,000 per year for 10 years.

2. $400,000 to be paid on this same date in the year of the next U.S. presidential election.

3. $20,000 per year to be paid the rest of my life (using 50 years as the approximate time to be paid)

4. A friend that has no money says he wrote me a check for $1,000,000 and put it in the mail several years ago and wants to know if I received it.

5. $500,000 to be paid on this same date in 5 years.

I want to make 14 percent annual return on this money.

After judging uncertainty which offer should I take? Explain why.

Present value of options discounted at 14% is

1. 260,805.78

2. 269,988.61

3. 142,988.61

4 1,000,000

5. 259,684.33

Due to the slim to none chance of 4 occuring 2 would appear to be the best option.

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