Carolyn Fields Has Just Won the State Lottery Present Value of $1

question 30

Essay

Carolyn Fields has just won the state lottery.The state offers the following three payout options for after-tax prize money:
1.$50,000 per year at the end of each of the next six years
2.$300,000 (lump sum)now
3.$400,000 (lump sum)six years from now
Calculate the present value of each scenario using an 8% annual discount rate.Round to nearest whole dollar.
Present value of an ordinary annuity of $1:
$$\begin{array} { | c | r | r | r | } \hline & 7 \% & 8 \% & 9 \% \\\hline 1 & 0.935 & 0.926 & 0.917 \\\hline 2 & 1.808 & 1.783 & 1.759 \\\hline 3 & 2.624 & 2.577 & 2.531 \\\hline 4 & 3.387 & 3.312 & 3.240 \\\hline 5 & 4.100 & 3.993 & 3.890 \\\hline 6 & 4.767 & 4.623 & 4.486 \\\hline\end{array}$$ Present value of $1:
$$\begin{array} { | c | r | r | r | } \hline & 7 \% & 8 \% & 9 \% \\\hline 1 & 0.935 & 0.926 & 0.917 \\\hline 2 & 0.873 & 0.857 & 0.842 \\\hline 3 & 0.816 & 0.794 & 0.772 \\\hline 4 & 0.763 & 0.735 & 0.708 \\\hline 5 & 0.713 & 0.681 & 0.650 \\\hline 6 & 0.666 & 0.630 & 0.596 \\\hline\end{array}$$

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Definitions:

Standard Deviations

A metric that calculates the extent of spread or deviation of data points from their average value.

Independent

Free from outside control or influence, able to make decisions or act according to one's own principles.

Homeowner's Policy

An insurance policy providing coverage for damage to a person's home and possessions within, as well as liability for accidents that occur in the home or on the property.

Independent

A term in statistics that describes two or more variables which do not influence or affect each other.