Question

Debra Wilcox won $6.5 million in the California lottery. She must choose how she wants the prize to be paid to her. First, Debra can elect to receive 26 annual payments, with the first payment due immediately. Second, she can elect to receive a single payment immediately for the entire amount. However, if she elects the single payment option, the winning prize is reduced to 60% of the winning. What rate would make Deborah indifferent about these two options?

26 Annual Payments:

N = I/Y =
PV =
PMT =
** ** FV =

1 Payment Amount:

Answer #1

Suzie just won the lottery! As her prize, she will receive $2500 a
month for the next 10 years. The first payment will be paid today.
At 6%, compounded monthly, what is her prize worth today?

Shelley wants to cash in her winning lottery ticket. She can
either receive sixteen $100,000 semiannual payments starting today,
or she can receive a single-amount payment today based on a 6%
annual interest rate. What is the single-amount payment she can
receive today?
Multiple Choice
$801,969.
$853,020.
$744,090.
$1,293,794.

Congratulations! You have just won the State Lottery. The
lottery prize was advertised as an annuitized $105 million paid out
in 30 equal annual payments beginning immediately. The annual
payment is determined by dividing the advertised prize by the
number of payments. You now have up to 60 days to determine whether
to take the cash prize or the annuity.
a. If you were to choose the annuitized prize, how much would you
receive each year?
b. The cash prize...

Kristina just won the lottery, and she must choose among three
award options. She can elect to receive a lump sum today of $61
million, to receive 10 end-of-year payments of $9.4 million, or to
receive 30 end-of-year payments of $5.4 million.
If she thinks she can earn 7% percent annually, which should she
choose?
If she expects to earn 8% annually, which is the best
choice?
If she expects to earn 9% annually, which option would you
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Explain...

You have just won the Georgia Lottery with a jackpot of
$53,000,000. Your winnings will be paid to you in 26 equal annual
installments with the first payment made immediately. If you feel
the appropriate annual discount rate is 14%, what is the present
value of the stream of payments you will receive?

2. You just won a Million Dollar lottery and you can choose one
of the following two options to claim your winning. If you choose
Option A, you will receive $40,000 every year for 25 years (40,000
x 25 = $1,000,000 hence the name), with the first payment to occur
one year from today. But you may also choose Option B, in which
case you will receive a single payment of $600,000 today. The
applicable tax rate for the annual...

You have just won the Georgia Lottery with a jackpot of
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installments with the first payment made immediately. If you had
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annual interest rate of 8% with monthly compounding of interest.
What is the present value of the stream of payments you will
receive?

Dana just won $1,000,000 in the state lottery. Her
prize can be taken either in the form of $40,000 at the end of each
of the next 26 years (annuities), or as a single amount of $500,000
paid immediately. If the discount rate is 3% annually, which
alternative she should take? and why?
Select one:
a. She should take the $500,000 because it's value
today is higher than the value of the $40,000 payments for the next
26 years
b....

Dana just won $1,000,000 in the state lottery. Her prize can be
taken either in the form of $40,000 at the end of each of the next
26 years (annuities), or as a single amount of $500,000 paid
immediately. If the discount rate is 3% annually, which alternative
she should take? and why?
Select one:
a. She should take the $500,000 because it's value today is
higher than the value of the $40,000 payments for the next 26
years
b....

You have just won the Mega Millions Lottery with a jackpot of
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installments with the first payment made immediately. If you had
the money now, you could invest it in an account with a quoted
annual interest rate of 12% with monthly compounding of interest.
What is the present value of the stream of payments you will
receive?

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