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Annual interest on investments

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Reference no: EM132042346

In 2016 A Pevely man won the Missouri lottery and was given the choice of receiving $6.8 million in cash immediately, or 25 annual payments of $400,000 each (also beginning today). At what interest rate would he be indifferent between the two options? Suppose he believes he could earn 6% annually on his investments. Which option should he take?

Question 5b) Suppose he could earn 6% annual interest on his investments. Which options should he take?

Lump Sum Calculation

1. Clear All (Orange Button, C/C All)

2. 6,800,000 PV (Present Value) button

3. 6.0 I/YR (Interest/ Year) button

4. 25 N (Number of Years) button

5. 0 PMT (Payment Amount button

6. Press FV for Future Value calculation

Lump Sum Future Value = 29,184,720.89

Annuity Payment Calculation

1. Clear All (Orange Button, C/C All)

2. 0 PV (Present Value) button

3. 6.0 I/YR (Interest/ Year) button

4. 25 N (Number of Years) button

5. 400,000 PMT (Payment Amount button

6. Press FV for Future Value calculation

Annuity Payment Future Value = 21,945,804.80

He should choose the Lump Sum Payment

Reference no: EM132042346

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