Value of an annuity versus a single amount Personal Finance Problem Assume that you just...
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Value of an annuity versus a single amount Personal Finance Problem Assume that you just won the state lottery Your prize can be taken either in the form of 542 000 at the end of each of the next 30 years (that is, $1,200,000 over 30 years) or as a single amount of $598,000 paid irrumediately a. Il you expect to earn 9% annually on your investments over the next 30 years, gnoring taxes and other considerations, which alternative should you take? Why? b. Would your decision in part a change if you could eam 11% rather than 9% on your investments over the next 30 years? Why? c. At approximately what interest rate would you be indifferent between the two options a. To decide which alternative to tako, you need to compare the values of these alternatives. Although the total nominal dollar amount of the annuity is 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 annully the present value of the 30-year ordinary annuity ns (Round to the nearest cent)
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