The state lottery claims that its grand prize is $1 million. The lucky winner will receive $50,000 upon presentation of the winning ticket plus $50,000 at the end of each year for the next 19 years.
a-Why isn't this really a million-dollar prize?
b-What would it actually be worth in dollars to you?
c-What would the twenty yearly payments need to be for the present value of the lottery to be $1 million? Hint: The first step is to determine what type of an annuity the lottery represents.
Assume the required rate of return is 5%. Please show work.