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Value of annuity

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Value of annuity
You have just won the Texas State Lottery. You can (1) receive a million dollars a year, for twenty years, with the first payment being made
 today or you can (2) elect to take immediate cash payment of $9,000,000 for the total prize value. Your required return for all investments at this time is 10%.
 Ignoring taxes and any non-financial considerations, which alternative should you take and WHY? (Show computations to support your answer.)
        
This question was answered on Jun 24, 2016.Purchase Solution @ 29.44 USD
Value of annuity
Solution: Option 1: Annual Payment = $1000000 Time Period = 20 Years Required Rate of Return = 10% Present Value of Annuity Due = Annual Payment*(1 r)*(1-1/(1 r)^n)/r So, Present Value of Option 1 = $1000000*(1 10%)*(1-1/(1 10%)^20)/10% = $9364920

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