What would be the value of the annuity payments

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Mega Millions has reached a record-breaking jackpot of $1.6 billion. Whoever holds the winning lottery ticket will be given two options: They can collect their winnings as a one-time lump sum that's less than the value of the total jackpot in this case, and the lump sum payment would be $904,900,000, or they can receive the full amount in annual installments stretched out over 30 years. The annuity will pay out the equivalent value of the lottery 1.6 billion dollars (meaning the present value of all future cashflows). The lottery will guarantee a return of 5%.

What would be the value of the annuity payments? If you were to take the lump sum payment what rate of return would make you indifferent between the annuity and the lump sum payment?

Reference no: EM132799676

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