Suppose you hit a progressive jackpot on a 25-cent Fortunemaker slot machine in a casino in Las Vegas and are given the choice of the following prizes:
Prize 1: 200,000 to be received right away, with four additional payments of 200,000 to be received each year for the next four years.
Prize 2: 750,000 to be received right away.
If the interest rate is 3 percent, what is the present value of each prize?
Question 2
Why is money you receive at some future date worth less to you than money you receive today?
What will be an ideal response?