Can you explain this - The prize which totals $1,000,000 is payable in a financial annuity over forty years or

Question

or the contestant may choose to receive the present cash value

Its the disclaimer on Americas got talent - does that mean the guy or gal will get 25k a year for 40 years??????

Answer 1

It isn't exactly clear... your interpretation makes the most sense though.

At 6% APR, the present value of a 25k per year annuity for 40 years is $378,640... this would be the lump sum payout.

5% - 432,050

7% - 335,247

Answer 2

I means the winner can choose to receive $25,000 each year, or to receive the amount that would have to be invested at a stated rate today to generate the $25,000 annual payments for 40 years.  The rate used is ALWAYS less than you could receive from a GOOD investment.  Choosing the present cash value and investing it in mutual funds results in MORE total income if you don't blow it.

Answer 3

Yes, that's exactly what it means. They can choose the $1,000,000 paid over forty years or they can have the present cash value immediately. The present value is approximately $500,000 (assuming 4% inflation, first payment made immediately). If you assume 3% inflation, it's more like $590,000.