6. A lottery offers two options for the prize.

Question

Option A: $1000 a week for life
Option B: $ 600 000 in one lump sum.

The current expected rate of return for large investment is 7%/a, compounded weekly.

a. Which option would the winner choose if s/he expects to live for another 25 years?

Answer 1

so you need to find the Present Value of $1000 per week for 25 years.

i = .07/52 = .001346153
n = 25(52) = 1300

evaluate
1000( 1 - 1.001346153^-1300)/.001346153

and compare to $600 000