Question

Alice just won the lottery and is trying to decide between the options of receiving the annual cash flow payment option of $370,000 per year for 20 years beginning today, or receiving one lump-sum amount today. Mary Alice can earn 4% investing this money. At what lump-sum payment amount would she be indifferent between the two alternatives?

Answer 1

the lumpsum payment amount that should be indifferent between the two alternatives is $5,028,411

Step-by-step explanation:

The computation of the lumpsum payment amount that should be indifferent between the two alternatives is shown below:

Lumpsum amount is

= $370,000 × PVIFA at (4%,20)

= $370,000 × 13.5903

=$5,028,411

Hence, the lumpsum payment amount that should be indifferent between the two alternatives is $5,028,411

The same is to be considered