You've just won the 1,050,000 Massachusetts state lottery. You must choose one of the following payout alternatives: 35,000 at the beginning of each year for the next 30 years, or 510,675 today Beverly Bank will buy and/or sell annuities and/or upfront amounts of any maturity at an APR of 5 percent. a. What is the PV of the annuity alternative assuming you sell it to Beverly Bank? b. An acquaintance has won the lottery and wants the lump-sum payout. You offer to pay her 530,000 if she assigns the lottery winnings to you. If she accepts the offer what is your dollar profit?

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
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You've just won the 1,050,000 Massachusetts state
lottery. You must choose one of the following payout
alternatives:
35,000 at the beginning of each year for the next 30
years, or
510,675 today
Beverly Bank will buy and/or sell annuities and/or
upfront amounts of any maturity at an APR of 5
percent.
a. What is the PV of the annuity alternative assuming
you sell it to Beverly Bank?
b. An acquaintance has won the lottery and wants the
lump-sum payout. You offer to pay her
530,000 if she assigns the lottery winnings to you. If she
accepts the offer what is your dollar
profit?
Transcribed Image Text:You've just won the 1,050,000 Massachusetts state lottery. You must choose one of the following payout alternatives: 35,000 at the beginning of each year for the next 30 years, or 510,675 today Beverly Bank will buy and/or sell annuities and/or upfront amounts of any maturity at an APR of 5 percent. a. What is the PV of the annuity alternative assuming you sell it to Beverly Bank? b. An acquaintance has won the lottery and wants the lump-sum payout. You offer to pay her 530,000 if she assigns the lottery winnings to you. If she accepts the offer what is your dollar profit?
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