Question

2 You Won the Lottery! You have just won the lottery and will receive 30 yearly payments, as follows: you get $1,500,000 in the first year, after which yearly payments will increase by 2.7% per year. A company specializing in purchasing annuities (yes, they do exist!) offers you instant $14,000,000 in cash to purchase the right to receive your winnings. The relevant interest rate is 3% per year. Will you take the offer?

Answer 1

Ans. Present Value of a Growing Annuity - Pa r a In a r-g First Payment é rate per period. growth rate number of periods. 1500vvo_ 0.03 -0.027 X 0.27 (140.03 ? $ 41,893,376 - 43 not. It is reconimended offer and accept to accept $14,000,000 the in cash Since the present value is greater than the $ 14, oro, 000.00 Hence accept the cash of the annuity cash o one should not offer.