1. Suppose you win the lottery and are given the following three options: (1) Receive 30 million dollars today; (2) receive 2 million dollars per year over the next 25 years; or (3) receive 1 million...

Extracted text: 1. Suppose you win the lottery and are given the following three options: (1) Receive 30 million dollars today; (2) receive 2 million dollars per year over the next 25 years; or (3) receive 1 million dollars per year indefinitely (being passed on to your heirs). Which is the best deal, assuming that the annual interest rate is 4%? We answer this by working through the following sequence of questions. a. How much are the 2 million dollars received annually over the course of 25 years worth in terms of today's dollars, assuming an annual interest rate of 4%? b. Use the answer to part a. to find a general formula for the present value of payments of C dollars received each year over the next n years, assuming an average annual interest rate r. c. Find a formula for the present value if annual payments of C dollars continue indefinitely, assuming an average annual interest rate r. d. Use the answer to part c. to determine the present value of 1 million dollars paid annually indefinitely. e. Use your answers to parts a. and d. to determine which of the three options is best.