Economics @ ITT

Present Value of Lottery Payout over Time

Posted in economics by ittecon on January 17, 2011

[S]he hasn’t decided whether to take the annuity or cash option. If she elects the one-time $190 million cash option, she would receive a check for more than $80 million after taxes. If she chooses an annuity, 26 payments over 25 years, her annual payment would be $4.9 million after taxes. Which is the better option, and at what discount rate should she be indifferent?

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