Your dreams of becoming rich have just come true. You have won the State of Tranquilitys Lottery. The State offers you two payment plans for the$5,000,000 advertised jackpot. You can take annual payments of $250,000 for the next twenty years or $2,867,480 today. a. If your investment rate over the next twenty years is 8%, which payoff will you choose?

Your dreams of becoming rich have just come true. You have won the State of Tranquility’s Lottery. The State offers you two payment plans for the$5,000,000 advertised jackpot. You can take annual payments of $250,000 for the next twenty years or $2,867,480 today.

a. If your investment rate over the next twenty years is 8%, which payoff will you choose?

b. If your investment rate over the next twenty years is 5%, which payoff will you choose?

c. At what investment rate will the annuity stream of $250,000 be the same as the lump sum payment of $2,867,480?

Annuity
An annuity is a series of equal payment made at equal intervals during a period of time. In other words annuity is a contract between insurer and insurance company in which insurer make a lump-sum payment or a series of payment and, in return,...