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000 to be paid in annual Installiments of $200,000 for 20 years. Alternatively, the winner can accept a cash value one-time
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Answer #1
Present value of Annuity = P [(1-(1+r)-n)/r]
Where,
P =Periodic payment
r = rate per period
n= Number of periods
Present value of Annuity = 200,000 [(1-(1+0.07)-20)/0.07]
Present value of Annuity = 200,000 * 10.59401425
Present value of Annuity = 2,118,802.85
Present value of installment plan = 2,118,802.85
No, he should not choose the one-time payment
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