Asked by Steve


Max has just won some money on a game show! He has the option to take a lump sum payment of $500,000 now or get paid an annuity of $4,900 at the beginning of each month for the next 10 years. Assuming the growth rate of the economy is 2.9% compounding annually over the next 10 years, which is the better deal for Max and by how much?

a- lump sum by $77,462.75

b- lump sum by $4,145.41

c- annuity by $88,000.00

d- annuity by $4,145.41

my answer is d

I'm not sure of the math to get to the answer. What would the formula be?
Answered by Reiny
find the present value of an annuity of $4900, with n = 120 and i = .029/12
then it is obvious which is the better deal.

btw, I did not get any of the answers given.
How did you get d ?
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