Question

You win a $314.9 million dollar Powerball jackpots. You are scheduled to get 30 equal annual payments that add up to $314.9 million, with the first payment comes today. However, you are given options of getting a lump-sum payment of $150 million today. If the interest rate was 4.31%, which option would you choose?

Answer 1

	The option which has the higher PV when discounted at 4.31%
	is to be preferred.
1]	Equal annual payments at the beginning of each year [Annuity
	due]:
	PV = (314.9/30)*(1.0431^30-1)*1.0431/(0.0431*1.0431^30) =	$           182.40	million
2]	PV of lumpsum payment today does not require discounting.
	Hence, its PV =	$           150.00	million