The Illinois lottery has an instant game that promises 25 top prizes of $1 million each. In the small print it says that the $1 million prize will be paid $50,000 a year for 20 years or as a cash payment of $600,000 in lieu of the annuity. Assuming the first of the twenty $50,000 payments begins at the time the winning ticket is submitted.
A.) What inrest rate was used to arrive at the $600,000 cash option.
B.) If the best rate at which you could invest the cash is 4.5% p.a, is the cash option a good deal?