Question:
Justin Banks just won the lottery and is trying to decide between the annual cash flow payment option
of$100,000 per year for 15 years beginning today, and the lump-sum option. Justin can earn 8 percent
investinghis money. At what lump-sum payment amount would he be indifferent between the two
alternatives? Usethe appropriate table located at the end of the textbook to solve this problem.
a. $824,424
b. $855,948
c. $890,378
d. $924,424
Answer:
d. PVAD = $100,000 x 9.24424 = $924,424
Justin Banks just won the lottery and is trying to decide between the annual cash flow payment option
of$100,000 per year for 15 years beginning today, and the lump-sum option. Justin can earn 8 percent
investinghis money. At what lump-sum payment amount would he be indifferent between the two
alternatives? Usethe appropriate table located at the end of the textbook to solve this problem.
a. $824,424
b. $855,948
c. $890,378
d. $924,424
Answer:
d. PVAD = $100,000 x 9.24424 = $924,424
