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Calculate maximum lump sum amount for future payments

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Assume I won the 100 million dollars in a lottery that paid installments of 20 million dollars a year for five payments or a lump sum payment. I would get the first installment payment on the day I won the lottery and installments to follow for the next four years. Or I could take the lump sum payment the day I won the lottery. What is the maximum lump sum payment the state should offer me? Show your work and explain you answer. Assume the current interest rate is 5% per year.

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The solution describes the steps to calculate maximum lump sum amount for future payments.

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Here periodic payment is made at the beginning of period. Maximum lump sum amount will be equal to ...

Solution provided by:
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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