Question

You have recently won the super jackpot in the Washington State 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 your winnings for each option? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) a. Present value of Option A b. Present value of Option B

          You have recently won the super jackpot in the Washington State 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 your winnings for each
option? (Do not round intermediate calculations and round your answers to 2 decimal
places, e.g., 32.16.)
a. Present value of Option A
b. Present value of Option B

You have recently won the super jackpot in the Washington State 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 receive580,000 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 your winnings for each
option? (Do not round intermediate calculations and round your answers to 2 decimal
places, e.g., 32.16.)
a. Present value of Option A
b. Present value of Option B

Added by Michael F.

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