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The Lottery

The document discusses various options for lottery winnings, including taking the lump sum cash option or an annuity option that spreads payments over many years. It analyzes factors like taxes, returns from investing, and psychology of winners. Key points covered include that the annuity is only taxed once upfront while cash is taxed twice, and investing annuity payments at 5% could yield over $6 million in returns over 26 years. Most winners choose cash due to wanting to spend winnings immediately rather than receiving smaller annual payments.

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190 views7 pages

The Lottery

The document discusses various options for lottery winnings, including taking the lump sum cash option or an annuity option that spreads payments over many years. It analyzes factors like taxes, returns from investing, and psychology of winners. Key points covered include that the annuity is only taxed once upfront while cash is taxed twice, and investing annuity payments at 5% could yield over $6 million in returns over 26 years. Most winners choose cash due to wanting to spend winnings immediately rather than receiving smaller annual payments.

Uploaded by

Theknower Ofitall
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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The Lottery Winnings

Looks Can Be Deceptive! Many Play, Few will When, and even few will truly win.

If you were one of the winners, which option would you select? Why?
The annuity seems to the more finically safe, because the option only has a one time taxation of federal and state, in this case is 32.2 %. However, the quicker and faster way is cash option which usually taxed twice, once from lottery commission which about 50% and then the state and federal. However, once one dies the winnings are consumed by the state not the family of the deceased, so I would say for someone expecting live for the next 26 years this is a great option, however if you do not chose the annuity option.

How much would you receive with the annuity option?


The annuity is only taxed once, but broken into twenty-six annual payments.

181,000,000 * .678 = 122,718,000.00


122,718,000/26= 4,719,923.0769 So, if you chose the annual payments one is looking at $4,719,923.0769 every year for 26 years after taxes But, $6,961,538.46 every year before taxes, annually.

Is the state of Michigan justified in advertising the prize amount as 363 million? Explain
On initial thought no, mainly because of false advertising, and having individuals believing under false pretenses. However, after further examination I drew form upon the conclusion that they must have a published cash valued amount to calculate the result in true value later. It truly is the consumer/winners ignorance that is under false belief not the state of Michigan.

Larrys Annuity payment plan investing in a risk-free rate of interest at 5%


First and foremost since the investment has no risk, Larry should invest more than the 5%,truly. Additionally, the outcome demands on the invest and market. For instance, if he was to invest the entire lottery winning annually into a 5% risk free investment. He could stand to make $235,996.1538 annually , and if he does this for entire annuity of 26 years he stands a chance to make $6,135,900.00 in total
4,719,932.0769 *.05=235,996.1538 235,996.1538 * 26 = 6,135,900.00

Why do most winners select the cash option plan when given a choice?
Less number of years, not just he least being 26 years. Which will in return increase the payments dramatically. This will entice the cash option to choose the annuity, because the payout is greater. Also, if there was a large sum available in the beginning for the winner, then the rest broken into large options. Reason being most individuals wish enjoy and spend immediately after winning, not later.

The End
Good Luck to all winners.

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