#1. Howie has just learned he has won a Br 5,000,000 prize in the lottery. The lottery has given him two options for receiving the payments:
i. If Howie takes all the money today, the state and federal governments will deduct taxes at a rate of 46% immediately.
ii. Alternatively, the lottery offers Howie a payout of 20 equal payments of $360,000 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%.
Assuming Howie can earn an 8% rate of return (compound annually) on any money invested during this period, which pay-out option should he choose?