posted by Sammy
lottery offers two options for the prize. (7)
Option A: $1000 a week for life.
Option B: $600 000 in one lump sum.
If you choose Option B, you have the opportunity to place the winnings into an investment that also makes regular payments, at a rate of 3%/a, compounded monthly.
Which option would the winner choose if s/he expects to live for another 50 years?
At what point in time is Option A better than Option B?
I assume we have to ignore taxes, which would be a silly assumption, but anyway ....
We have to compare $600,000 with the present value of the annuity
PV of annuity = 1000( 1 - 1.0025^-600)/.0025
what would be your choice?