Eric won the Largest powerball lottery on Nov 28, 2017. He had two options: Opti

Question

Eric won the Largest powerball lottery on Nov 28, 2017. He had two options:

Option 1: Take the lump sum cash payment of $480.5 million.

Option 2: Take the annuity of $25.29 million per year for 30 years.

Assuming that you can get a guaranteed interest rate of 10%, which option do you recommend and why?

Option??

Because??

Eric won the Largest powerball lottery on Nov 28, 2017. He had two options:

Option 1: Take the lump sum cash payment of $480.5 million.

Option 2: Take the annuity of $25.29 million per year for 30 years.

Assuming that you can get a guaranteed interest rate of 10%, which option do you recommend and why?

Option??

Because??

Explanation / Answer

Option 1 is preferrable

Reason: Value of receipt in option 1 is higher

Option 1: Lumpsum cash payment Value of receipt $480.5 million Option 2: Annuity Annual Receipt $25.29 million PVAF(10%, 30) 9.426914 Value of receipt 238.4066551

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