Suppose you have won $1,122,000 in the lottery. You have two options. Option 1: Take a lump sum of $953,700. Option 2: Receive the entire amount of your winnings in 240 monthly installments of $4,675.00. Either way, you have decided to be very disciplined about this money and invest all you receive. a. Suppose you take Option 1 and deposit the lump sum of $953,700 into an account that pays an APR of 4% compounded monthly. Find the account balance after 20 years. Option 1: $ _____________ b. Suppose you take Option 2 and deposit your monthly installments of $4,675 into an account with the same terms: APR of 4% compounded monthly. Find the account balance after 240 monthly deposits. Option 2: $ _____________ c. How much do you gain by taking the money in a lump sum (Option 1)? Gain by Choosing Option 1: $ _____________
Suppose you have won $1,122,000 in the lottery. You have two options.
Option 1: Take a lump sum of $953,700.
Option 2: Receive the entire amount of your winnings in 240 monthly installments of $4,675.00.
Either way, you have decided to be very disciplined about this money and invest all you receive.
a. Suppose you take Option 1 and deposit the lump sum of $953,700 into an account that pays an APR of 4% compounded monthly. Find the account balance after 20 years.
Option 1: $ _____________
b. Suppose you take Option 2 and deposit your monthly installments of $4,675 into an account with the same terms: APR of 4% compounded monthly. Find the account balance after 240 monthly deposits.
Option 2: $ _____________
c. How much do you gain by taking the money in a lump sum (Option 1)?
Gain by Choosing Option 1: $ _____________
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