The MassBay Lottery Commission is offering a $20 million grand prize, which will be paid out as

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The MassBay Lottery Commission is offering a $20 million grand prize, which will be paid out as 20 payments of $1,000,000 starting at the end of the first year and then each subsequent year. The lottery also offers a lump-sum payout available immediately.

a. Assuming a discount rate of 7% what is the value of the lump sum payout today?

b. What would happen to the value of the payout option if the discount rate decreased by 1%?

c. What factors should you take into consideration when deciding whether you should take the annuity option and the lump sum?

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Data Analysis and Decision Making

ISBN: 978-0538476126

4th edition

Authors: Christian Albright, Wayne Winston, Christopher Zappe

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Posted Date: Jul 07, 2023 02:39 AM

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The MassBay Lottery Commission is offering a $20 million grand prize, which will be paid out as

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Expert Answer:

a To calculate the value of the lump sum payout today we need to discount each payment back to the present value using the discount rate of 7 The form... View the full answer

Data Analysis and Decision Making

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