Winning the Lottery
Winning the Lottery
If you won the lottery and had the choice of a lump-sum payoff or an annuity payoff, what factors would you consider besides the implied interest rate (indifference interest rate) in selecting the payoff style? Provide a quantitative example to illustrate your choice. 350 words min.
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Answer preview……………
Factors such as my current wealth or debts could influence my decision. If I have a significant amount of liability and want to be duty-free, I might opt the lump-sum option. If I am terrible at accounting for money and I know I would probably squander the entire cash, I might choose a slower payoff style or the annuity. If I desired to be philanthropic, I might want to opt the lump sum to give more money away to charity. Nevertheless, there are factors I would consider the tax effects after probably taking my winnings in a lump sum style. With this, I would get obligated to income taxes on the entire amount in the year paid. Put this into consideration; the financial windfall probably would push me into a higher tax bracket. Through scattering out the payments over a couple of decades implies I will owe taxes to the government….
APA 561 words