The lottery officials use the time value of money

Assignment Help Business Management

Reference no: EM132520039

Overview

Personal financial decisions, like whether to accept a lump sum of money today or receive money in the future, are also guided by the time value of money concept. In this week's discussion we will explore and examine the time value of money factors and other considerations that influence a lottery winner's decision on whether to accept a lump sum payment today or receive annuity payments over time.

Initial Post

Scenario: Have you noticed that when someone wins the lottery they are given two payment options? They are asked if they want a "lump sum" payment immediately, or if they are willing to have their payments staggered over time and receive a larger sum of money. If they choose the latter option, the payments are split into annual annuity payments for an extended period of time (typically over a 30-year period).

Here is an example of an actual $398 million Powerball lottery winner. The winner was given the choice of receiving a $213 million lump-sum payment immediately, or receiving $398 million in payments spread out over the course of 30 years. If the winner chose the option of receiving annual payments, the winner would receive larger payments each successive year. The winner would receive $7.1 million in year one, $7.4 million in year two, and so on. The amounts would increase each year and would culminate in a final payment of $22 million in year 30.

Discuss all of the following questions:

Which payment choice would you make? Why?

Why do you think the Powerball Lottery organization offers these two different payment options to the winner? What do you think are the pros and cons of each option for the Powerball Lottery organization? What do you think are the pros and cons of each option for the winner?

Explain how the time value of money is used in the decision making of the lottery winner.

Explain how the lottery officials use the time value of money in designing the payment options offered to winners.

Reference no: EM132520039

Questions Cloud

Describe the mechanisms that prevent a cell : Identify and describe the mechanisms that prevent a cell from making more ATP than it needs.

Define rationalization in brief : Define "rationalization" and apply it to Jocasta when she mentions that "maternal wedding" to Oedipus Rex. 300 words. The response must be typed.

Examine marx writings on communism and socialism : Examine Marx's writings on communism and socialism and compare them to how they manifested in reality? What worked and what didn't?

Describe how microtubules and kinesin help vesicles move : Differentiate the fate of proteins made at the rough endoplasmic reticulum compared to proteins made in the cystol.

The lottery officials use the time value of money : Explain how the lottery officials use the time value of money in designing the payment options offered to winners.

Do the documents all fit within the same genre : If mentioned, how does the treatment of women vary across these societies? What do you think explains differences or similarities?

Permeability and selectivity of the plasma membrane : How does the basic structure of the lipid bilayer determine the permeability and selectivity of the plasma membrane?

Summarize your locus of control assessment results : Summarize your Locus of Control assessment results. Tell me your Locus of Control score and if you agreed or disagreed with it. Why? Give me an example.

What is the concentration of hydrogen ions : A baking soda solution has a pH of 8. Is the solution acidic, basic, or neutral? Why?

User Account

All Pages