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You have won the lottery. $750 million was the prize which will be paid in equal installments over the next 25 years (so 25 payments of $30 million per year, starting today). You also have the option to take a lump sum immediately which will be calculated based on the above payout using a dsicount rate of 6%. Assume that you have to pay a 50% tax on your prize, what is the resulting payout (after tax)? Hint: a 6% discount does not mean the prize is 6% less -- this is obviously a time value of money problem so think about what is given here and construct a timeline to properly account for the cash flows.

You have won the lottery. $750 million was the prize which will be paid in equal installments over the next 25 years (so 25 payments of $30 million per year, starting today). You also have the option to take a lump sum immediately which will be calculated based on the above payout using a dsicount rate of 6%. Assume that you have to pay a 50% tax on your prize, what is the resulting payout (after tax)? Hint: a 6% discount does not mean the prize is 6% less -- this is obviously a time value of money problem so think about what is given here and construct a timeline to properly account for the cash flows.

Algebra and Trigonometry (6th Edition)
Algebra and Trigonometry (6th Edition)
6th Edition
ISBN:9780134463216
Author:Robert F. Blitzer
Publisher:Robert F. Blitzer
ChapterP: Prerequisites: Fundamental Concepts Of Algebra
Section: Chapter Questions
Problem 1MCCP: In Exercises 1-25, simplify the given expression or perform the indicated operation (and simplify,...
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You have won the lottery. $750 million was the prize which will be paid in equal installments over the next 25 years (so 25 payments of $30 million per year, starting today). You also have the option to take a lump sum immediately which will be calculated based on the above payout using a dsicount rate of 6%. Assume that you have to pay a 50% tax on your prize, what is the resulting payout (after tax)? Hint: a 6% discount does not mean the prize is 6% less -- this is obviously a time value of money problem so think about what is given here and construct a timeline to properly account for the cash flows.
Transcribed Image Text:You have won the lottery. $750 million was the prize which will be paid in equal installments over the next 25 years (so 25 payments of $30 million per year, starting today). You also have the option to take a lump sum immediately which will be calculated based on the above payout using a dsicount rate of 6%. Assume that you have to pay a 50% tax on your prize, what is the resulting payout (after tax)? Hint: a 6% discount does not mean the prize is 6% less -- this is obviously a time value of money problem so think about what is given here and construct a timeline to properly account for the cash flows.
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