Assume that you just won the state lottery. Your prize can be taken either in the form

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Assume that you just won the state lottery. Your prize can be taken either in the form of $40,000 at the end of each of the next 25 years (i.e., $1 million over 25 years) or as a lump sum of $500,000 paid immediately

a. If you expect to be able to earn 5% annually on your investments over the next 25 years, which alternative should you take? Why?

b. Would your decision in part (a) be altered if you could earn 7% rather than5 % on your investments over the next 25 years? Why?

c. At approximately what interest rate would you be indifferent when choosing between the two plans?

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Introduction to Corporate Finance What Companies Do

ISBN: 978-1111222284

3rd edition

Authors: John Graham, Scott Smart

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Question Posted: Mar 26, 2015 06:19 AM

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Assume that you just won the state lottery. Your prize can be taken either in the form

Question:

Step by Step Answer:

PVA n PMT 1 1 r 1 r n a PVA 25 40000 005 1 1 05 25 PVA 25 800000 704697 P...View the full answer

Introduction to Corporate Finance What Companies Do

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