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# Week 3 Discussion Forum With no less than 300 words post an initial reply to the question below Online Forum

Week 3 Discussion Forum
With no less than 300 words, post an initial reply to the question below
Online Forum Discussion:
Many American families play the lottery. Winning the lottery offers an easy path to financial security. But for most that play, this dream remains unrealized, deferred, always just out of reach. But imagine you win a major lottery prize. The choice is \$500,000 cash today or \$50,000 a year paid over 25 years. Which is a better choice? What should be taken into consideration? (Support your answer with information from this week’s information or cited outside sources).
Post by
Mariscela Jaimes
Winning the lottery Im sure in itself is satisfying, I would love to just win something
But many are blessed in many other ways.
So when deciding between the two choices, either \$500,000 cash today or \$50,000 a year paid over 25 years you have to think about if over 25 years.
Lets just say cost of capital is 8
%, then my PV will be higher than one time payment so I would certainly go with the year amount.
To make it easy for me; I like to think about interest rate, will my money grow over time or should I just take the leap and cash all of it right now.
If I cash the money right now Im taxed on that \$500,000.
But for happinesss sake, lets say Im not taxed:
PRESENT VALUE METHOD:PV of the 25 instalments = 50000*PVIFA(3,25) = 50000*17.4131 =\$
870,655As the PV of the deferred payment is more, it is preferred.
Soooo since I care about interest rate lets see if I get this right, if the interest rate is 3
% over 25 years
FUTURE VALUE METHOD:FV of the lump sum = 500000*1.03^25 =\$
1,046,889FV of the deferred payment = 50000*FVIFA(3,25) =50000*36.4593 =\$
1,822,965As the FV of the deferred payment is more, it should be preferred.
I personally would choose the \$50,000/year.
I would continue to work and watch the money grow with interest being paid.
Thats personally what I say now of course.
Theres a lot that people take in consideration though, for me I have to
remember that I am married and filing jointly with my spouse.
So in reality if I won between \$400,001 – \$600,000 I (we) would be taxed at 35
% of that money.
Thats a huge chunk that I rather want to take in instalments.
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