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Remainder in annual payments of the same amount

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Reference no: EM133253367

Congratulations! You just won $150,000 in the state lottery. You can collect $15,000 today and receive the remainder in annual payments of the same amount (i.e., also $15,000). Or you can take a lump-sum payment of $125,000 today. Which should you choose?

Use the current U.S. Treasury 10-Year Note yield as your discount rate to calculate the PV of the annuity. What is the PV if your payments increase by 2% per year? Why is the U.S. 10-Year Note yield an appropriate discount rate? Or is it? What is your opportunity cost?

Reference no: EM133253367

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