Problem:
Francis Peabody just won the $89,000,000 California State Lottery. The lottery offers the winner a choice of receiving the winnings in a lump sum or in 26 equal annual installments to be made at the beginning of each year. Assume that funds would be invested at 7.65%. Francis is trying to decide whether to take the lump sum or the annual installments.
Required:
Question: What is the amount of the lump sum that would be exactly equal to the present value of the annual installments?
- $89,000,000
- $38,163,612
- $13,092,576
- $41,083,128
Note: Please provide reasons to support your answer.