You have recently won the super jackpot in the Washington State Lottery. On read

Question

You have recently won the super jackpot in the Washington State Lottery. On reading the fine print, you discover that you have the following two options:

You will receive 32 annual payments of $350,000, with the first payment being delivered today. The income will be taxed at a rate of 25 percent. Taxes will be withheld when the checks are issued.

You will receive $630,000 now, and you will not have to pay taxes on this amount. In addition, beginning one year from today, you will receive $300,000 each year for 31 years. The cash flows from this annuity will be taxed at 25 percent.

Using a discount rate of 8 percent, what is the present value of your winnings? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))

You have recently won the super jackpot in the Washington State Lottery. On reading the fine print, you discover that you have the following two options:

Explanation / Answer

1) The first option is an annuity DUE because payments are received in the beginning of the period.

PV of annuity DUE = PMT * [{1

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