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    Lottery winnings taken as a lump sum or over a period of time

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    Lottery winnings to be taken as a lump sum of $112,000 cash or $35,000 plus $6000 for the next 40 years. What issues are considered when weighing the options?

    You have to consider the PV of the annuity and also FV for the payment over the years, is that an approach to figure out the best option? If you took the sum of $112,000 and invested it you would have to take into consideration a % of what the money would earn over the 40 years. Or would you be better off spreading it? What is the formula I would use to calculate the amount you would make over the 40 years.

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    Solution Preview

    There are 2 options here for evaluation:

    (1) Through Present Value (PV)
    In this case, we need to compare 112,000 (lump sum - value today) with the sum of 35,000 and PV of an ...

    Solution Summary

    Both the through present and future value options are evaluated for lottery winnings.