Jodi Jarvis Won a $10 Million Lottery and Elected to Receive

question 1

Essay

Jodi Jarvis won a $10 million lottery and elected to receive her winnings in 20 equal undiscounted annual installments.After receiving the first 10 installments, Jodi and her husband divorced, and the remaining 10 payments became part of the property settlement.The judge who presided over the divorce proceedings awarded one-half interest in the future lottery payments to Jodi and the other half to her ex-husband.Following the divorce, Jodi decided to sell her interest in the 10 remaining lottery payments to raise the cash needed to open a bakery.An investor has offered Jodi $1,677,520.
Required
a.What discount rate did the investor use in calculating the purchase price?
b.If Jodi can invest the money she gets at 6%, which is the better option, keeping the annuity or accepting the investor's offer? Why?
c.What needs might Jodi have that would make the investor's offer the preferable option, no matter what the interest rate (within reason)?

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Definitions:

Rejecting Goods

The act of a buyer refusing to accept delivery of products or services because they do not meet the specified requirements or standards.

Services

Intangible actions or performances that one party can offer to another that does not result in the ownership of anything.

Intangible Products

Goods that cannot be seen, touched, or physically measured, such as services or digital products.

Design Thinking

A problem-solving approach that involves empathy, creativity, and rationality to meet user needs and solve complex problems.