You win a $314.9 million dollar Powerball jackpots. You are scheduled to get 30 equal annual payments that add up to $314.9 million, with the first payment comes today. However, you are given options of getting a lump-sum payment of $150 million today. If the interest rate was 4.31%, which option would you choose?
The option which has the higher PV when discounted at 4.31% | |||
is to be preferred. | |||
1] | Equal annual payments at the beginning of each year [Annuity | ||
due]: | |||
PV = (314.9/30)*(1.0431^30-1)*1.0431/(0.0431*1.0431^30) = | $ 182.40 | million | |
2] | PV of lumpsum payment today does not require discounting. | ||
Hence, its PV = | $ 150.00 | million |
You win a $314.9 million dollar Powerball jackpots. You are scheduled to get 30 equal annual...
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