Question

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. She should take the annuities because they are $208,178 higher in value today than the single amount

c. She should take the annuities because they are $233,214 higher in value today than the single amount

d. She should take the annuities because they are $215,074 higher in value today than the single amount

Answer 1