You are considering two different payment plans for the lottery you just won. Option 1 pays $10,000 today and Option B pays $20,000 at the end of ten years. Assume you can earn 6.5 percent on your savings. Which option will you choose if you base your decision on present values? Which option will you choose if you base your decision on future values? Explain why your answers are either the same or different.

Answer 1 : Present value = Future value / (1 + r)^n

Option 1 - 10000

Option 2 : Present value = 20000/ ( 1.065)^10

Present value = 10654.52

Since the value of 20000 after 10 years is more we will go for option 2 

Answer 2 :Option 1 - 

Future value = 10000 * ( 1.065)^10

Future value = 18771.37

Option  2 - 20000

Since the value of 20000 after 10 years is more we will go for option 2 

Answer 3 : Answers in both case 1 and case 2 are same as 

Present value is the sum of money that must be invested in order to achieve a specific future goal. Future value is the dollar amount that will accrue over time when that sum is invested. The present value is the amount you must invest in order to realize the future value.

Step-by-step explanation

Option 1 - 10000

Option 2 : Present value = 20000/ ( 1.065)^10

Present value = 10654.52

Since the value of 20000 after 10 years is more we will go for option 2 

Answer 2 :Option 1 - 

Future value = 10000 * ( 1.065)^10

Future value = 18771.37

Option  2 - 20000

Since the value of 20000 after 10 years is more we will go for option 2 

Answer 3 : Answers in both case 1 and case 2 are same as 

Present value is the sum of money that must be invested in order to achieve a specific future goal. Future value is the dollar amount that will accrue over time when that sum is invested. The present value is the amount you must invest in order to realize the future value.