Question: You like to buy lottery tickets every week The lottery

You like to buy lottery tickets every week. The lottery pays an insurance company that pays the winner an annuity. If you win a $60,000,000 lottery and elect to take an annuity, you get $3,000,000 per year at the beginning of each year for the next 20 years.
a. How much will the state have to pay the insurance company if money can earn 3 percent?
b. How much interest is earned on this lump-sum payment over the 20 years?
c. If you take the cash, rather than the annuity, the state pays you $30,000,000 in one lump sum today. You must pay 40 percent of this in taxes. If you are currently working and invest this money at 6 percent, how much money will you have in a mutual fund at the end of 20 years?
d. Are you better off with the annuity or should you take the cash? Explain.

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  • CreatedJuly 31, 2015
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