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1 November, 14:57

Graciela treadwell won a lottery. she will have a choice of receiving $25,000 at the end of each year for the next 30 years, or a lump sum today. if she can earn a return of 10 percent on any investment she makes, what is the minimum amount she should be willing to accept today as a lump-sum payment?

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  1. 1 November, 15:14
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    The minimum amount she should be willing to accept today as a lump-sum payment is $235,672.86 based on her certain investment return of 10%. The lump-sump value can be calculated by using the present value of ordinary annuity formula which stated as PV = P * (1 - (1+r) ^-n) / r where PV is the present value, P is the annual payment, r is the discount rate, and n is the period of time. Calculation: 235,672.86 = 25,000 * (1 - (1+10%) ^-30) / 10%
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