Suppose you have won $1,122,000 in the lottery. You have two options. Option 1: Take a lump sum of $953,700. Option 2: Receive the entire amount of your winnings in 240 monthly installments of $4,675.00. Either way, you have decided to be very disciplined about this money and invest all you receive. a. Suppose you take Option 1 and deposit the lump sum of $953,700 into an account that pays an APR of 4% compounded monthly. Find the account balance after 20 years. Option 1: $ _____________ b. Suppose you take Option 2 and deposit your monthly installments of $4,675 into an account with the same terms: APR of 4% compounded monthly. Find the account balance after 240 monthly deposits. Option 2: $ _____________ c. How much do you gain by taking the money in a lump sum (Option 1)? Gain by Choosing Option 1: $ _____________

A game of chance offers the following odds and payoffs. Each play of the game costs $125, so the net profit per play is the payoff less $125. Probability 0.20 0.40 Payoff $500 200 Net Profit $375 75 0.40 0 -125 a-1. What is the expected cash payoff? Note: Round your answer to the nearest whole dollar amount. a-2. What is the expected rate of return? Note: Enter your answer as a percent rounded to the nearest whole number. b-1. What is the variance of the expected returns? Note: In the calculation, use the percentage values, not the decimal values for the rates of return. Do not round intermediate calculations. Round your answer to the nearest whole number. b-2. What is the standard deviation of the expected returns? Note: Enter your answer as a percent rounded to 2 decimal places. a-1. Expected cash payoff a-2. Expected rate of return b-1. Variance b-2. Standard deviation % %

2. If you decided to save the entire $20,000 from your lottery payment each year for the next 20 years at 3%, how much would you have saved up in your bank account?

You just won the TVM Lottery. You will receive $1 million today plus another 10 annual payments that increase by $700, 000 per year. Thus, in one year you receive $1.70 million. In two years, you get $2.40 million, and so on. If the appropriate discount rate is 8.0 percent, what is the value of your winnings today? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e. g., 1,234,567.89.)