Gabrielle just won $3.3 million in the state lottery. She is given the option of
ID: 2790146 • Letter: G
Question
Gabrielle just won $3.3 million in the state lottery. She is given the option of receiving a total of $1,300,000 now, or she can elect to be paid $110,000 at the end of each of the next 30 years. If Gabrielle can earn 8 % annually on her investments, from a strict economic point of view which option should she take?
A. If Gabrielle takes the prize as an annuity, the present value of the 30year ordinary annuity is $?
B. If Gabrielle takes the prize as a single amount, the present value of the lump sum is $?
Explanation / Answer
a.Present value=$110,000*Present value of annuity factor(8%,30)
=$110,000*11.26
=$1,238,356.17(Approx)
b.present value of the lump sum=$1,300,000
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