a. Assume that you just $25 million in the Texas lottery, and hence the state will pay you 20 annual payments of $1.25 million at the end of each year. If the rate of return on securities of similar risk to the lottery earning (e.g., the rate on 20-year U.S. Treasury bonds) is 5%, what is the present value of your winnings?
b. Considering this, which option should you take? Explain your answer.
- Option 1: a lump sum payment of $25 million up front
- Option 2: 20 annual payments of $1.5 million