Lottery Winning: Yearly Annuity Vs Lumpsum Payment
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You win $5,000,000 in the lottery. You can take it all now or receive payments over the next twenty years. Assume the discount rate is 4%. Calculate and show the ending amount as well as explain what is the value of money represented by the situation and how did you arrive at the value?
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Detailed break down of each case with calculations.
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Winnings from lottery 5,000,000.00
Received over 20.00 years
Discount rate 4%
Yearly payments 250,000.00
1.04
Year Yearly payments Discount factor @ 4% Discount payments
1 250,000.00 0.96 240,384.62
2 250,000.00 0.92 231,139.05
3 250,000.00 0.89 222,249.09 ...
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