Assume that you just won the state lottery. Your prize can be taken either in the form of 27,000 at the end of each of the next 2020 years? (that is,540,000 over 20?years) or as a single amount of 316,000 paid immediately.
a. If you expect to be able to earn 7?% annually on your investments over the next 20 ?years, ignoring taxes and other? considerations, which alternative should you? take? Why?
1a. If you take the prize as an? annuity, the present value of the 2020?-year ordinary annuity is ?$?
1b. If you take the prize as a single? amount, the present value of the lump sum is ?$?
c. On a strictly economic? basis, at approximately what earnings rate would you be indifferent between the two? plans?