You just won the Cash for Life Lottery and they offer you two choices: a) Get...

You just won the Cash for Life Lottery and they offer you two choices: a) Get paid $1,000/week for 25 years

b) Receive a one time payment of $675,000.

If you could earn 6% annual return on your investments, what option is better

Solutions

Expert Solution

Total number of weeks in 25 years = 52 * 25 = 1,300

Interest rate per week = 6% / 52 = 0.1154%

The Present Worth of receiving $1,000 per week = A(P/A, 0.1154%, 1300)

= 1,000(673.069)

= $673,069

Since the present value of weekly payment is less than the one time payment of $675,000, therefore, one time payment option is better.

Rahul Sunny answered 3 months ago

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