You just won the lottery! The annuitized jackpot involves payment to you with the amounts listed below:
Question:
You just won the lottery! The annuitized jackpot involves payment to you with the amounts listed below:
payment year
10,000 0
15,000 1
20,000 2
25,000 3
30,000 4
35,000 5
You currently have savings in a brokerage account that have averaged 10% returns of each of the last 5 years, and you expect that level of annual return to continue over each of the next 5 years. For each of the following questions, support your decision with a proper time value of money calculation:
a.) if the lottery offered you $90,000 today in lieu of the above-stated payments, would you take the cash or the six payments over the next 5 years?
b.) if you accept the payments and invest the money in your brokerage account, how much cash will have accrued from the lottery payments and accrued interest by the end of year five?
c.) beginning today (time zero), what five uniform beginning of period payments would be equivalent to the original annual payments?
Microeconomics An Intuitive Approach with Calculus
ISBN: 978-0538453257
1st edition
Authors: Thomas Nechyba