Question

Suppose you won a special math lottery and were given the following options:
Option A- You are given $10,000 and recieve $1,000 every year thereafter.
Option B- You are given $1,000 and recieve 10% more each year.
Which option would you choose and why?
What if the lottery went bankrupt in five years, are the plans equal?
Would you take a one-time payout of $50,000 instead of option A or B? Why or why not?

Answer 1

I would pick B because I would end up with more than i would've if I had picked A

Answer 2

In five years, hmm
10,000+5*1,000=15,000

Answer 3

Trying to figure out what would be the best way to do this..

Answer 4

Okay cant find a shortcut ill just do it the long way..

Answer 5

Thank you :)

Answer 6

It's just an annual interest rate formula.

Answer 7

\[A = P(1+r)^y\]

Answer 8

Polpak what is it? I never learned it, im doing 10 percent for each year

Answer 9

P is the principal, r is the interest rate (.10) and y is the number of years

Answer 10

oh okay thanks a lot! So P is 1000

Answer 11

So according to polpak:
A = 1000*(1+0.10)^5

Answer 12

1610.51

Answer 13

That is correct

Answer 14

So plans would not be equal, the first option is better, u make more.

Answer 15

Would you take a one-time payout of $50,000 instead of option A or B? Why or why not?
Depends on how long the lottery would stay alive.

Answer 16

It would be interesting to see when they were the cutoff point was.

Answer 17

\[10 + 5y = (1+.1)^y\]

Answer 18

Looks like about 60 years. I think I'd go for option A. ;)