Congratulations! You are the proud winner of the multi-state Sour Ball

Congratulations! You are the proud winner of the multi-state Sour Ball Lottery. You are to receive
$2,000,000 at the end of each year for the next 20 years.

While the Lottery Commission refers to this
as a $40,000,000 jackpot, if you choose the “cash option” they will give you much less than that; you
can receive a lump sum payment today equal to the present value of the ordinary annuity instead
of the 20 annual payments. If the discount rate that the Lottery Commission uses to determine the
lump sum payoff is 7%, what is your payoff if you select the cash option?
A) $26,945,332 B) $42,977,401 C) $21,188,028 D) $39,707,503

ANSWER

C