Problem 1.2. You have won the Washington State Mega Millions Lottery, with an advertised prize value of $44 Million. Whe

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Problem 1.2. You have won the Washington State Mega Millions Lottery, with an advertised prize value of $44 Million. Whe

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Problem 1 2 You Have Won The Washington State Mega Millions Lottery With An Advertised Prize Value Of 44 Million Whe 1
Problem 1 2 You Have Won The Washington State Mega Millions Lottery With An Advertised Prize Value Of 44 Million Whe 1 (47.16 KiB) Viewed 47 times
Problem 1.2. You have won the Washington State Mega Millions Lottery, with an advertised prize value of $44 Million. When you go to claim your winnings, you find that you can accept an immediate cash payment of $34.5 Million, or you can choose instead an annuity which pays you a total of $44 Million in 25 equal annual payments. 1. Suppose the annual interest rate is 3%. What is the NPV of each option, and which option should you take? 2. What must Washington's Lottery believe will be the average annual interest rate over the next 25 years to make these options equivalent, assuming no taxes or inflation?
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