Question
Assume that you just won the state lottery. Your prize can be taken either in the form of $42,000 at the end of each of
Assume that you just won the state lottery. Your prize can be taken either in the form of $42,000 at the end of each of the next 25 years (i.e., $1.05 million over 25 years) or as a lump sum of $490,000 paid immediately.
1. If you expect to be able to earn 6% annually on your investments over the next 25 years, which alternative should you take?
2. Would your decision in part (a) be altered if you could earn 7% rather than 6% on your investments?
3. At approximately what interest rate would you be indifferent between the two plans? Round your answer to two decimal places.
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