Required: On March 17, 2016 you won $527.25 million in the Powerball Lottery. Th

Question

Required: On March 17, 2016 you won $527.25 million in the Powerball Lottery. The MultiStateLottery Association gave you the choice of 30 equal annual payments with the firstpayment of $17.575 million due on the day you claimed your prize. The remaining 29 paymentsfollow at one year intervals. Alternatively, you can elect to take as a lump sum payout on theday you claim your prize.Required:1. In general, how would you decide between future annual payments and a lump sum payout?2. Determine the lump sum payout that you would be offered if the Multi-State Lotteryassociation uses a discount rate of 4%.3. Assuming that the total payments remain unchanged, would you prefer that the paymentsincrease, decrease or remain constant through time? Explain your response.4. Assume instead the Lottery has offered you a payment of $21.7 million on the day you claimyour prize and 19 additional payments at one year intervals each increasing by 2%. Preparean Excel spread sheet to answer the following questions. In order to receive credit for youranswers, you must attach a copy of your spreadsheet using the "show formulas" option. Youmust also use Excel's NPV function to calculate the present values.a. Calculate the 19 additional annual payments using the future value formula.b. Assuming a discount rate of 2%, calculate the lump sum payout you would receive.How do you know this answer is correct?c. Assuming a discount rate of 4% determine the lump sum payout.d. Assuming a discount rate of 8% determine the lump sum payout.e. Assuming the Multi-State Lottery Association offer you a lump sum payout of$334.15 million, determine the discount rate used by the Multi-State LotteryAssociation to compute the payout. Round your answer to the nearest percent. Can someone answer there questions by tmr noon? Thx

Explanation / Answer

Given, Annual Payment 17.575 million Number of Payment 30 1 Decision to choose between future annual payments and a lump sum payout depends on availability of investment options for lumpsum payment and the interest rate that is expected to get on the lump sum payment. 2 Lump sum payment if the discount rate is: 4% Lump Sum Payment = $316.06 million 3 I would prefer the payment to increase through time. The reason is that money received in future worth less than money received present. So to compensate that decline in the value of the money I would prefer to get increase payment. 4 Given, First annual payment 21.7 million Increase by 2% 1a Year Payment 0 21.7 million 1 $22.13 million 2 $22.58 million 3 $23.03 million 4 $23.49 million 5 $23.96 million 6 $24.44 million 7 $24.93 million 8 $25.43 million 9 $25.93 million 10 $26.45 million 11 $26.98 million 12 $27.52 million 13 $28.07 million 14 $28.63 million 15 $29.21 million 16 $29.79 million 17 $30.39 million 18 $30.99 million 19 $31.61 million NPV = $434.00 million 2b Lump Sum Payment = $434.00 million Answer is correct. It is proved by the fact that both NPV and PV formula has given the same value. 3c Lump Sum Payment if discount rate is 4% Lump Sum Payment = $363.16 million 4d Lump Sum Payment if discount rate is 8% Lump Sum Payment = $266.07 million 5e. Rate used for payout: PV $434.00 FV = $644.90 RATE = 2.0%

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