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Why years payments are better than the lump sum payment

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Reference no: EM132956115

Time Value of Money

You won a state lottery and will receive a payout of $20 million after taxes. In addition, you have two payout options from the lottery commission:

Starting immediately, a 20-year yearly payment stream of $1,199,151.34 or a lump sum payment of $20 million.

Problem 1: You contacted your bank, who advised you that they could provide you a 1% interest rate if you placed the lump sum with them. Why the 20 years payments are better than the lump sum payment?

Reference no: EM132956115

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