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Which payout option should bailey select

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Reference no: EM13512589

Bailey Mills recently won the jackpot in the New Jersey lottery while he was visiting his parents. When he arrived at the lottery office to collect his winnings, he was offered the following three payout options:

a. Receive $40,000,000 in cash today.

b. Receive $10,000,000 today and $3,600,000 per year for 10 years, with the first payment being received one year from today.

c. Receive $5,000,000 per year for 20 years, with the first payment being received one year from today.

Assuming that the effective rate of interest is 10%, which payout option should Bailey select? Explain your answer and provide any necessary supporting calculations.

Reference no: EM13512589

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