Math question help needed

label Accounting
account_circle Unassigned
schedule 1 Day
account_balance_wallet $5

Penny just won the state lottery that offers a choice of payments. She may opt to receiving $1,000,000 today or $2,000,000 at the end of 10 years. If she can invest her funds at 5% annually, which is the better choice?

 

Jun 3rd, 2015

Thank you for the opportunity to help you with your question!

Investing at 5% annually, she will get an interest of:

Annual interest is:

5% of $1,000,000

=$50,000

For the 10 years he gets an interest of $50,000 *10

=$500,000

Adding the principal amount will give him $1,500,000

Investing for that interest rate pays far less and so its better getting $2,000,000 after 10 years.


Please let me know if you need any clarification. I'm always happy to answer your questions.
Jun 3rd, 2015

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