Answer to Question #93632 in Financial Math for May

Question

A lottery offers two options for the prize.

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 3%/a, compounded monthly.

Which option would the winner choose if s/he expects to live for another 50 years?
At what point in time is Option A better than Option B?
To answer (3b), did you assume that the winner would never spend any of that money? Write a brief reflection about which option you would choose, and why (pay attention to the math, but reflect upon how much money you would want to be spending as opposed to saving).

Answer 1

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