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Marcus has won a 5,000,000 state lottery. he can take his prize as either 10 yearly...

Marcus has won a 5,000,000 state lottery. he can take his prize as either 10 yearly payments of 500,000 or a lump sum of 3,210,000. which is better? assume an interest rate of 9%


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Answer #1

find the present value first

PMT=500000

r=9% =0.09

t=10 years

n=1 for annual payment

here present value is less than the lump sum amount 3210000

.

so lump sum option is better

.

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