Marcus has won a $3,000,000 state lottery. He can take his prize as either 20 yearly payments of $150,000 or a lump sum of $1,275,000. Which is the better option? Assume an interest rate of 10%.Select the correct choice below and, if necessary, fill in the answer box to complete your choice.(Round to the nearest dollar as needed.)- **A.** The present value of the lottery winnings is $_____; this is worse than the lump sum of $1,275,000.- **B.** The present value of the lottery winnings is $_____; this is better than the lump sum of $1,275,000.- **C.** The present value of the lottery winnings is the same as the lump sum of $1,275,000.Click to select and enter your answer(s) and then click Check Answer.(All parts: Clear All)

PV It is a current worth of the cash flows stream/ future sum of money for a time period at a…

Marcus has won a $3,000,000 state lottery. He can take his prize as either 20 yearly payments of $150,000 or a lump sum of $1,275,000. Which is the better option? Assume an interest rate of 10%. Select the correct choice below and, if necessary, fill in the answer box to complete your choice. (Round to the nearest dollar as needed.) O A. The present value of the lottery winnings is $ this is worse than the lump sum of $1,275,000. O B. The present value of the lottery winnings is $ this is better than the lump sum of $1,275,000. O C. The present value of the lottery winnings is the same as the lump sum of $1,275,000.

Marcus has won a $3,000,000 state lottery. He can take his prize as either 20 yearly payments of $150,000 or a lump sum of $1,275,000. Which is the better option? Assume an interest rate of 10%. Select the correct choice below and, if necessary, fill in the answer box to complete your choice. (Round to the nearest dollar as needed.) O A. The present value of the lottery winnings is $ this is worse than the lump sum of $1,275,000. O B. The present value of the lottery winnings is $ this is better than the lump sum of $1,275,000. O C. The present value of the lottery winnings is the same as the lump sum of $1,275,000.

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

Problem 1PS

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Peter won a lottery and must decide among the following options: a. $260 at the beginning of every month for 5 years starting 3 years from now. b. $13,250 8.5 years from now. Money' is worth 3.4% compounded monthly. By how much the best option exceed the worst one, based on the present value of the offer?
You won a lottery of $1,000,000. Office offered two options: the first one you can take it today a $500,000 today (after tax), or the second option: $50,000 per year for the rest of your life (you are 20 and expected to live a long time, like 200…) if the interest rate is 10%. What is the value of the second option today?
Jane Wilson won a lottery. The British Columbia Lottery Commission offers her three payout options to receive her prize: Option 1 Receive CAD 140,000 at the end of 10 years. Option 2 Receive CAD 12,000 at the end of each of the next ten years. Option 3 Receive CAD 5,000 at the end of each of the next ten years plus CAD 10,000 at the end of each of the ten subsequent years. The interest rate is 5.0%, compounded annually. REQUIRED: 1. Which option should Jane select?
16 Mary Alice just won the lottery and is trying to decide between the options of receiving the annual cash flow payment option of $390,000 per year for 25 years beginning today, or receiving one lump-sum amount today. Mary Alice can earn 6% investing this money. At what lump-sum payment amount would she be indifferent between the two alternatives? Note: Use tables, Excel, or a financial calculator. Round your final answer to the nearest whole dollar. (FV of $1, PV of $1, FVA of $1,PVA of $1, FVAD of $1 and PVAD of $1)
Your grandfather has offered you a choice of one of the three following alternatives: $10,000 now; $4,800 a year for eight years; or $56,000 at the end of eight years. Use Appendix B and Appendix D for an approximate answer, but calculate your final answer using the formula and financial calculator methods. a-1. Assuming you could earn 9 percent annually, compute the present value of each alternative: (Do not round intermediate calculations. Round your final answers to 2 decimal places.) a-2. Which alternative should you choose? multiple choice 1 $56,000 received at end of eight years $4,800 received each year for eight years $10,000 received now b-1. If you could earn 10 percent annually, compute the present value of each alternative: (Do not round intermediate calculations. Round your final answers to 2 decimal places.) b-2. Which alternative should you choose? multiple choice 2 $56,000 received at end of eight years $4,800 received each year…
Peggy just won the lottery! She could either receive $75,000 today or $1,000,000 in 40 years. At what rate of interest, compounded annually, would Peggy be indifferent between accepting the lottery winnings of $75,000 today and investing it on her own? A) 6.7%B) 6.1%C) 5.5%D) 2.4%
Suppose that Dmitri just won the lottery and must choose between three award options: 1. A lump sum of $40,000,000 received today 2. 15 end-of-year payments of $5,000,000 3. 40 end-of-year payments of $3,600,000 Assume the interest rate is 8.00%, entered as 8 on your financial calculator. Note: Take the absolute value of the present value when answering this question. Using a financial calculator yields a present value for option 2 of approximately and a present value for option 3 of approximately (when the interest rate is 8.00%). Based on this, Dmitri should choose option if he seeks to maximize present value. Now assume the interest rate is 9.00%, entered as 9 on your financial calculator. Note: Take the absolute value of the present value when answering this question. Using the table you just filled out and a financial calculator, yields a present value for option 2 of approximately and a present value for option 3 of approximately v (when the interest rate is 9.00%). Based on…
Your dreams of becoming rich have just come true. You have won the State of Tranquility's Lottery. The State offers you two payment plans for the$4,000,000 advertised jackpot. You can take annual payments of $160,000 at the end of the year for the next 25 years or $1,864,573 today. b. If your investment rate over the next 25 years is 6%, what is the present value of the $160,000 annual payments today?
It is the end of 2023. You (foolishly) played the lottery and won the following cash flows, to be paid at the end of each year: Year 2024 2025 2026 2027 2028 Cash flow 1,100 1,600 1,800 2,000 2,200 The appropriate interest rate is 13%. What is the sum of present values?
Your answer is partially correct. Chris Long has just learned he has won a $506,800 prize in the lottery. The lottery has given him two options for receiving the payments. (1) If Chris takes all the money today, the state and federal governments will deduct taxes at a rate of 46% immediately. (2) Alternatively, the lottery offers Chris a payout of 20 equal payments of $39,500 with the first payment occurring when Chris turns in the winning ticket. Chris will be taxed on each of these payments at a rate of 26%. Click here to view factor tables. Compute the present value of the cash flows for lump sum payout. (Round answer to O decimal places, e.g. 458,581.) Lump sum payout $ Assuming Chris can earn an 9% rate of return (compounded annually) on any money invested during this period, compute the present value of the cash flows for annuity payout. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to O decimal places, e.g. 458,581.) Present value of annuity payout…
the lottery commission wants to be able to withdraw $400,000 at the beginning of each year for twenty years to cover annual payments due to Randy who won 8 million. How much does the commission need to invest today in an account paying 3.6% compounded annually to provide these payments?
You like to buy lottery tickets every week. The lottery pays an insurancecompany that pays the winner an annuity. If you win a $60,000,000 lotteryand elect to take an annuity, you get $3,000,000 per year at the beginningof each year for the next 20 years.a. How much must the state pay the insurance company if money can earn3 percent?b. How much interest is earned on this lump-sum payment over the 20 years?c. If you take the cash rather than the annuity, the state pays you $30,000,000in one lump sum today. You must pay 40 percent of this in taxes. If you arecurrently working and invest this money at 6 percent, how much moneywill you have in a mutual fund at the end of 20 years?d. Are you better off with the annuity, or should you take the cash? Explain.

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