Q11

1. As an employee in the Lottery Commission, your job is to design a new prize. Your idea is to create two grand prize choices: (1) receiving $50,000 at the end of each year beginning in one year for 20 consecutive years, or (2) receiving $500,000 today followed by a one-time payment at the end of 20 years. Using an interest rate of 3%, which of the following comes closest to the amount prize (2) needs to pay at the end of year 20 in order that both prizes to have the same present value?

a.$ 440,463

b.$ 326,649

c.$ 235,712

d.$ 114,932

e.$ 393,342