. I just won the Power Ball Lottery. Lottery officials offer several different p

Question

. I just won the Power Ball Lottery. Lottery officials offer several different payout options. One of those options will allow me to collect $1,000,000 today and then $500,000 annually thereafter for the next 20 years starting on the first anniversary of my win. Interest rates (APR) are currently 5% and I expect them to remain quite stable for some period of time. I am glad that I won the lottery but a local investment firm has offered to buy my winning for $5,000,000. Is this a good deal for me? In other words should I sell my winning lottery ticket to the investment firm?

Explanation / Answer

If every year the lottery fees are collected at first 1,000,000 is paid for next 20 years 500,000 is paid . So using 5% APR Net Present Value is 500,000(1/(1+0.05)+1/(1+0.05)^2+......+1/(1+0.05)^20) =6,226,392 So total value of lottery is 7,226,392 But investment company only gives 5,000,000. So it isn't a good deal. I am 100% sure abt the answer.

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