Question

The Powerball Lottery prize this week is at $590,500,000. The odds are 1 in 175,223,510 that you will win. Winners have two choices in how they receive their winnings: (1) one lump sum of $370,896,781, or (2) 30 annual payments of $19,683,333. If you win the lottery, should you take the annuity or the cash? (To help with your decision: 3.59% is the discount rate that makes the present value of the annuity due-30 annual payments-equal to the one lump sum. Now, in your discussion, think about what you learned in Chapter 9 that would describe the cost of making the “wrong” decision in this example.)

Answer 1