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P5-25 (similar to) Assigned Media Question Help Value of an annuity versus a single amount...

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P5-25 (similar to) Assigned Media Question Help Value of an annuity versus a single amount Personal Finance Problem Assume that you just won the state lottory Your prize can be taken either in the form of $91.000 at the end of each of the next 20 years that s. 51 820,000 over 20 yosrs) or as a single amount of $1,256,000 paid immediately a. If you expect to earn 5% annually on your investments over the next 20 years. Ignoring taxes and other considerations which alternative should you take? Why? b. Would your decision in part a change if you could earn 7% rather than 5% on your investments over the next 20 years? Why? c. At approximately what interest rate would you be indifferent Dofwoon the two options? a. To decide which alternative to take you need to compare the values of these alternativos Although the total nominal dollar amount of the annuitys much larger than the single payment, the former is not necessarily a better choice due to the different timing of cash flows A way to make a meaningful comparison of the two alternatives is to compare their present values if you take the prize as an amuty, the present value of the 20 year ordinary annuty is $ 778 (Round to the nearest cont)

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