Description of this paper

Howie Long has just learned he has won a $500,000 prize in the lottery

Description

solution


Question

Howie Long has just learned he has won a $500,000 prize in the lottery. The lottery has given him 2 options for receiving the payments;1) If Howie takes all the money today, the state and federal governments will deduct taxes at a rate of 46% immediately.;2) Alternatively, the lottery offers Howie a payout of 20 equal payments of $36,000 with the first payment occurring when Howie turns in the winning ticket. Howie will be taxed on each of these payments at a rate of 25%.;Instructions;Assuming Howie can earn an 8% rate of return (compounded annually) on any money invested during this period, which payout option should he choose?

 

Paper#25461 | Written in 18-Jul-2015

Price : $22
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