You just won the Powerball lottery that pays after-tax $30,000 per year beginning immediately for the next 20 years. The lottery commission makes you an alternative offer to accept a lump sum of $400,000 today to settle the winning. Assume that the reinvestment rate is 4% per annum. Which of the following statements is correct? A. Accept the offer because you are making $24,018.18 more than investing the annual payments B. Reject the offer because you could make $24,018.18 more by investing the annual payments. C. Accept the offer because you are making $7,709.79 more than investing the annual payments D. Reject the offer because you could make $7,709.79 more by investing the annual payment
You just won the Powerball lottery that pays after-tax $30,000 per year beginning immediately for the next 20 years. The lottery commission makes you an alternative offer to accept a lump sum of $400,000 today to settle the winning. Assume that the reinvestment rate is 4% per annum. Which of the following statements is correct?
| A. |
Accept the offer because you are making $24,018.18 more than investing the annual payments |
|
| B. |
Reject the offer because you could make $24,018.18 more by investing the annual payments. |
|
| C. |
Accept the offer because you are making $7,709.79 more than investing the annual payments |
|
| D. |
Reject the offer because you could make $7,709.79 more by investing the annual payment |
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