Instructionsassuming howie can earn an 8 rate of return

Reference no: EM13590509

Howie Long has just learned he has won a $500,000 prize in the lottery. The lottery has given him two 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 pay-out option should he choose?

Reference no: EM13590509

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