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YOU JUST WON THE FLORIDA LOTTERY!!!! In case you didn\'t know, lottery winners a

ID: 2638953 • Letter: Y

Question

YOU JUST WON THE FLORIDA LOTTERY!!!! In case you didn't know, lottery winners are immediately faced with a present value of an annuity problem, which you are now trained to solve. Assume you won $15 million in the lottery. You are given the option of receiving thirty $500,000 annual payments, with the first payment due TODAY, or taking a $4.6 million lump sum TODAY. You want to compare the PV of the annuity to the lump sum to see which is better. What is the PV of this annuity assuming you can invest the money at a 12% annual rate and which option is best?

It is a TVM problem. Please show work. Answer choices are

$135,146,303; take the annuity

Explanation / Answer

$3,596,064; take the lump sum

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