Mega Millions has reached a record-breaking jackpot of $1.6 billion. Whoever holds the winning lottery ticket will be given two options: They can collect their winnings as a one-time lump sum that's less than the value of the total jackpot in this case, it would be $904,900,000, or they can receive the full amount in annual installments stretched out over 29 years. The annuity will pay out 1 billion dollars (meaning the present value of all future cashflows). The current inflation rate is 3%. What interest rate would make you indifferent between the annuity and the lump sum payment?
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Mega Millions has reached a record-breaking jackpot of $1.6 billion. Whoever holds the winning lottery ticket...
The $1.6 Billion Mega-millions winning lottery ticket is based upon the total amount of cash received if the annuity option is taken. The cash prize is $913,700,000 which you get immediately. The annuity option starts with a $ 24,082,300. payment now and then annual payments that are each 5% higher than the last payment for a total of 30 payments. Let’s complicate this further and model Federal (24%) and CT State taxes (7%) which take away from your earnings. a....