Mary Alice just won the lottery and is trying year for 20 years beginning today,

Question

Mary Alice just won the lottery and is trying year for 20 years beginning today,or receiving amount payment amount would she be indifferent between the two alternatives? (Use appropriate factoris) from the tables provided and round final answer to to decide between the options of receiving the annual cash flow payment option of $270,000 per one lumoum amount today Mary Ace can earn 4% investing this money At what lump-sum (EV.of S1. PV.of S1 EVA ot St, PVA of St. EVAD of $1 and PYAD ot S nearest whole dollar amount) Mutiple Choice $5,400,000 3,669389 $4086364 Prev 12 of E Next MacBook Air nd command

Explanation / Answer

Solution:

If Mary alice can invest money received from lottery at 4% interest rate, then lump sum payment amount at which alice will be indifferent between annual cash flow payment option and lump sum payment option = Present value of annual cash flow payment discounted at 4%

= $270,000 * cumulative PV factor of immediate annuity at 4% for 20 periods

= $270,000 * 14.13394 = $3,816,164

Hence last option is correct.

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