Assume that you just won the state lottery. Your prize can be taken either in the form of 27,000 at the end of each of the next 2020 years (that is,540,000 over 20years) or as a single amount of 316,000 paid immediately.

a. If you expect to be able to earn 7% annually on your investments over the next 20 years, ignoring taxes and other considerations, which alternative should you take? Why?

1a.If you take the prize as an annuity, the present value of the 2020-year ordinary annuity is $?

1b.If you take the prize as a single amount, the present value of the lump sum is $?

c. On a strictly economic basis, at approximately what earnings rate would you be indifferent between the two plans?