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Should have taken the stream of payments

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Reference no: EM132597293

Joe Blue is not a big financial expert, but on April 3, 2002, the self-employed appliance repair man did the financial news!

Joe was the sole winner of an advertised $48 million BC Lottery game.

Joe had a choice of one of two payoff options:

  1. either a lump-sum payment upfront or
  2. an annuity over 25 years.

Joe Blue accepted a lump-sum payment of $26,072,769 pre-tax, in full settlement of the $48 million advertised pot. The annuity alternative was equal annual payments of $1,920,000 pre-tax, over 25 years.

Question 1: Did Joe Blue make a sound financial decision as to how he should receive his winnings?

Question 2: Should he have taken the stream of payments instead of the lump sum?

detail your logic in writing and show calculations

Reference no: EM132597293

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