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Recently, someone won the lotus prize of $ 8,750,000. The person chose to take the immediate...

Recently, someone won the lotus prize of $ 8,750,000. The person chose to take the immediate sum of $ 4,375,000 instead of 20 annual payments of $ 437,500. Assuming that the prize can be invested at an annual rate of 7.5%, which of the two options has the highest present value? Please show every step!!!
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Answer #1

Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

=437,500[1-(1.075)^-20]/0.075

=437,500*10.1944914

=$4,460,089.97(Approx).

Hence 20 annual payments of $ 437,500 would have the highest present value.

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