While it is usually a frivolous (if fun) exercise to think too much about the lottery, it does illustrate the mechanics of an annuity (a form of insurance or investment entitling the investor to a series of annual sums.). To answer the following questions, visit the Powerball website (Powerball.com) for this week and use information in your book, and information available from the web.
What are the current jackpot (paid in 30 equal annual payments) and the cash payout value?
Assuming you could invest the entire cash payout at a guaranteed, insured rate of 2% a year, what would your annual return total?
Which option would you take? Explain your choice.
The current jackpot is $129 million, that would be drawn on January 20th.
At 2% return it shall yield =$129 million*0.02=2.58 million or $2,580,000 per year
Now this payout shall not be paid all at once, it shall be paid $129 million/30=$4.3 million per year
Here periods (N)=30
PMT=4.3 million or $4,300,000
rate (I/Y)=2%
CPT PV =$96.30 million or $96,300,000
Since the lumpsum payment is higher, we shall receive the amount as a lumpsum. It becomes higher when we account for the time value of the money
While it is usually a frivolous (if fun) exercise to think too much about the lottery,...