Most state lotteries in the U.S. give Lottery winners of particularly large priz

Question

Most state lotteries in the U.S. give Lottery winners of particularly large prizes the option of taking the total prize as an annuity over several years, usually 10-20, or as a discounted lump sum now. What are the various factors that should be considered in choosing either alternative if the goal is to maximize the total benefit to the Lottery winner? What are the risks associated with each alternative?

What does this relationship suggest to potential investors as far as setting important priorities using the relationship of present and future value? What is the most important determinant of meeting retirement goals?

Explanation / Answer

As per the rule, I can answer the first question only.

Following are the factors, we should consider:

If we choose lottery payment in the form of annuity, we have to face reinvestment risk and default risk. If we get the money today, there might be taxation issues.

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