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Value of an annuity versus a single amount Personal Finance Problem Assume that you just won the state lottery. Your prize can be taken ether

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Value of an annuity versus a single amount Personal Finance Problem Assume that you just won the state lottery. Your prize can be taken ether in the form of $92,000 at the end o f each of the next 30 years (that is, $2,760,000 over 30 years) or as a single amount of $1,106.000 paid immediatoy to earn 6% annually on your investments over the next 30 years, ignoring taxes and other considerations, which alternative should you a. If you expect to be able take? Why b. Would you decision in part a change if you could earn 8% rather than 6% on your investments overthe next 30 years? Why? c. On a strictly economic basis, at approximately what earnings rate would you be indfferent betweon the two plans? a. To decide which alternative larger than the single payment, the two alternatives is to compare their present values. to take, you need to compare the values of these alternatives. Although the total nominal dollar amount of the annuity is much ba not nocessarly better choice due to the diferent iming of cash fows. A way to make a meaningtul comparkon of f you take the prize as an annuity, the present value of the 30-year ordinary annuity is s (Round to the nearest cont) If you take the prize as a single amount, the present value of the lump sum is s (Round to the nearest dolar.) Which alternative should be chosen? (Select the best answer below) O Lump sum, because the present value is greater O Annual payments, because the present value is greater b. If you earned 8% rather Which alternative should be chosen? (Select the best answer below) than 6% on your investments, the present value of the 30-year ordinary annuity is S (Round to the nearest cent O Annual payments, because the present value is greater Lump sum, because the present value is greater O con a strictly economic basis, the rate at which you would be id ferent between the two plans is % Round to two decimal places)

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