Business, 11.02.2020 23:55 juansoto227711

Value of an annuity versus a single amount Assume that you just won the state lottery.
Your prize can be taken either in the form of $40,000 at the end of each of the
next 25 years (that is, $1,000,000 over 25 years) or as a single amount of $500,000
paid immediately.

a. If you expect to be able to earn 5% annually on your investments over the next
25 years, ignoring taxes and other considerations, which alternative should you
take? Why?
b. Would your decision in part a change if you could earn 7% rather than 5% on
your investments over the next 25 years? Why?
c. On a strictly economic basis, at approximately what earnings rate would you be
indifferent between the two plans?

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Value of an annuity versus a single amount Assume that you just won the state lottery.
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