Mega lotteries in country X pay out $1 million jackpots in the form of ordinary annuity of $5,000 over 200 months, but they also give winners the option to collect their winnings as a much smaller lump sum of $600,000. Explain how lottery winners use time value of money analysis to choose between annuity and lump sum if they earn an APR of 8 percent on their investment.  Lottery winners use rate of return of 8 percent as the discount rate to calculate the present value of the annuity.  In this case, the present value of the annuity is $_______ and is (higher than/lower than/equal to) the lump sum $______ ? Therefore, lottery winners should take (annuity/lump sum)?

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
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Mega lotteries in country X pay out $1 million jackpots in the form of ordinary annuity of $5,000 over 200 months, but they also give winners the option to collect their winnings as a much smaller lump sum of $600,000. Explain how lottery winners use time value of money analysis to choose between annuity and lump sum if they earn an APR of 8 percent on their investment. 

Lottery winners use rate of return of 8 percent as the discount rate to calculate the present value of the annuity. 
In this case, the present value of the annuity is $_______ and is (higher than/lower than/equal to) the lump sum $______ ?
Therefore, lottery winners should take (annuity/lump sum)? 

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