Present Value of Lottery Winnings The Sugar Maple Lottery run by the State of Maine just announced its new

$5,000,000 grand prize contest. The winner will receive payments of $200,000 at the end of each year for twenty-five years.

By law, the lottery must immediately deposit sufficient money with a local bank to provide for the payments. If the money deposited earns 10 percent interest compounded annually:

a. How much will the lottery need to deposit today to provide for the full amount of the payments?

b. If the lottery has sold only $3,900,000 of tickets by the time of the scheduled drawing, should officials proceed with the drawing or give refunds and cancel the drawing?

Explain why.

c. Assume a winner has been selected and she proposes that the lottery distribute her winnings at the rate of $250,000 per year for twenty years. Should the lottery officials accept her proposal? Explain.