2. The lottery ticket that your Uncle bought has hit the jackpot. He has the choice of prizes and asks you to help him choose. Option 1 is to receive five payments of $280,000 each, paid at the beginning of each of the next 5 years (i.e., the first payment will be made today). Option 2 is a one-time payment of $1,200,000 today.
a) Given a discount rate of 5.1% per year, which option has the highest present value?
b) At what discount rate would the options have an equal present value?
Could anyone help me with this? The issue is that I know the present value of both (280,000 and 1,200,000) and I don't know whether I should multiply 280,000*5 and then both bring to the same level or how should I proceed?
Thank you very much for your help.
