Comparing Lottery Payouts A lottery winner is given two options: Option I: Receive a $20 million lump-sum payment. Option II: Receive 25 equal annual payments totaling $60 million, with the first payment occurring immediately. If money can earn 6% interest compounded annually dur- ing that long period, which option is better? Hint: With each option, calculate the amount of money earned at the end of 24 years if all of the funds are to be deposited into a savings account as soon as they are received.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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24. Comparing Lottery Payouts A lottery winner is given two
options:
Option I: Receive a $20 million lump-sum payment.
Option II: Receive 25 equal annual payments totaling $60
million, with the first payment occurring immediately.
If money can earn 6% interest compounded annually dur-
ing that long period, which option is better? Hint: With each
option, calculate the amount of money earned at the end of
24 years if all of the funds are to be deposited into a savings
account as soon as they are received.
Transcribed Image Text:24. Comparing Lottery Payouts A lottery winner is given two options: Option I: Receive a $20 million lump-sum payment. Option II: Receive 25 equal annual payments totaling $60 million, with the first payment occurring immediately. If money can earn 6% interest compounded annually dur- ing that long period, which option is better? Hint: With each option, calculate the amount of money earned at the end of 24 years if all of the funds are to be deposited into a savings account as soon as they are received.
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