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Teresa won the New Mexico lottery and was given the option of receiving $22 million immediately or $1,250,000 at the end of each year for 30 years.

a. If Teresa opts for the 30 annual payments, how much in total will she receive?

b. What is the present value of the 30 annual payments if the interest rate is 4 percent? Based on this value, should Teresa opt for the up-front payment or the 30 installments?

c. What is the present value of the 30 annual payments if the interest rate is 8 percent? Based on this value, should Teresa opt for the up-front payment or the 30 installments?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M939262

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