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.
You like to buy lottery tickets every week. The lottery pays an insurance
company that pays the winner an
and elect to take an annuity, you get $3,000,000 per year at the beginning
of each year for the next 20 years.
a. How much must the state pay the insurance company if money can earn
3 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 $30,000,000
in one lump sum today. You must pay 40 percent of this in taxes. If you are
currently working and invest this money at 6 percent, how much money
will 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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