You’ve just won $10 million in a lottery, and the payout is 1/25 of the jackpot ($400,000) payable at the end of each year for 25 years. Alternatively, you have the option of receiving your payout as a $3 million lump sum.
What is the present value of the annuity if your investments earn 8 percent?
What is the present value of the annuity if your investments earn 10 percent?
Based on the present value calculations, is it better to take the lump sum or the annuity?