Question
You have recently won the super jackpot in the Set For Life Lottery. On reading the fine print, you discover that you have the following
You have recently won the super jackpot in the Set For Life Lottery. On reading the fine print, you discover that you have the following two options: a. You will receive 30 annual payments of $300,000, with the first payment being delivered today. The income will be taxed at a rate of 30 percent. Taxes will be withheld when the checks are issued. b. You will receive $580,000 now, and you will not have to pay taxes on this amount. In addition, beginning one year from today, you will receive $250,000 each year for 29 years. The cash flows from this annuity will be taxed at 30 percent. Using a discount rate of 6 percent, what is the present value of each option?
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