Last Friday’s Mega Millions prize was estimated to be $145 million. Reported Lottery prizes are just the sum total of the future annual payments. In this case, 26 beginning of the year annuity payments that will be paid to the prize winner. For the current prize: annual annuity payment = $145 million/26 = $5.577 million. Of course, this $145 million annuity total ignores the time value of money The winner can elect the cash option of $98 million today instead of the 26-year annuity that totals $145 million. What is the difference between today’s present value of the cash option and annuity payout at 3.5% compounded annually? Calculate your answer as PV(cash option) - PV(annuity payout).
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Last Friday’s Mega Millions prize was estimated to be $145 million. Reported Lottery prizes are just...
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