Ronald Long has just learned he has won a $500,000 prize in the lottery. The lottery has given him two options for receiving the payments. (1) If Ronald takes all the money today, the government will deduct taxes at a rate of 46% immediately. (2) The lottery offers Ronald a payout of 20 equal payments of $36,000 with the first payment occurring when Ronald turns in the winning ticket. Ronald will be taxed on each of these payments at a rate of 25%
Instructions
Assuming Ronald can earn an 8% rate of return (compounded annually) on any money invested during this period, which payout option should he choose?