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    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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    Winnings from lottery 5,000,000.00
    Received over 20.00 years
    Discount rate 4%
    Yearly payments 250,000.00

    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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    Detailed break down of each case with calculations.