1) The state lottery has given you the terrific news that you have just won the

Question

1) The state lottery has given you the terrific news that you have just won the $3M jackpot and that you now have to choose whether you will receive a single payment of $3M (which you can put into the bank) or you will receive an annuity of $120,000 per year for the next 30 years. The available bank interest rate is 6%. Assuming that you don't actually spend any of this money which choice will leave you in a better financial position in 30 years? Explain your answer. (Note: Be sure to thank your ENGR 140 instructor for preparing you to make this decision!)

Explanation / Answer

Ans. If I took $ 3 million in a single payment and put it in the bank at 6% interest rate for 30 years. So after 30 years the amount will become = $ 17,230,473.52 .

Now if decide to take $120000 per year for the 30 years time period and deposit the amount yearly in a bank at 6% interest, so the total amount after 30 years will be = $ 10,481, 783.58.

So clearly the option first is more rewarding based on the total amount after 30 years time period.

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