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How much money would you earn

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Question - You find out that you have won the Lotto Max Lottery worth $50,000,000. In Canada gaming winnings and insurance payouts are tax-free.

You do have a choice about how you accept your winnings. You can take a lump-sum amount of $39,000,000 or you can take an annuity payment starting at $1,900,000 and increasing by 5% every year for the next 19 years. If you die during this time your winnings will continue to be paid to your heirs. (An insurance annuity payment may or may not have this provision and your payments will be affected by this).

Which would you rather have, the lump-sum payment or the annuity? Why?

How much money would you earn if you accept the annual payments?

How can you end up with more money than the original $50MM award?

Why would the lump-sum amount be less than the original award?

Why would an insurance annuity pay less if the benefit stops at your death vs. continuing to be paid out to your heirs?

Reference no: EM132856778

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