Lottery Winner Looks Can Be Deceptive

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Beijing University of Aeronautics and Astronautics, BUAA Corporate Finance Case Study Lottery Winnings – Looks Can Be Deceptive! Group Members: Francine Cheikh Guillermo Loic Munkh-Erdene Aberash Anna Submitted to: Prof. BAI MING Date of submit: 02/November/2015 An anonymous from Michigan has stepped forward as the winner of the most recent $181,5 million The Big Game Lottery. Lucky Guy! Now comes the hard part. But what happens when you actually win? Normally the answer appears to be "take all the money up front immediately and subsequently squander every available penny on frivolous crap." But what if someone won the lottery and…show more content…
FV=PV*(1+i)N , where n=26, i=11% RATE | PRESENT VALUE | | Rate | Duration | Future Value | FV After Tax | 0,05 | 68037191,40 | | 0,11 | 26 | 1025991649,09 | 769493736,8 | 0,10 | 43358397,64 | | 0,11 | 26 | 653838775,25 | 490379081,4 | 0,15 | 30719588,28 | | 0,11 | 26 | 463247238,58 | 347435428,9 | 0,20 | 23458081,17 | | 0,11 | 26 | 353744693,08 | 265308519,8 | 0,30 | 15759338,41 | | 0,11 | 26 | 237648692,84 | 178236519,6 | If Larry decided do not sell the anuuity he won and just invests the annuity with the 5% risk-free interest rate, the future value will be the following: FV=4732961,54*((1+0,05)^26-1)/0,05=241918010,82 5. Why do most winners select the cash option plan when given a choice? Disscussing the case all of us agreed that the lump sum option wins by a longshot. Here's why: Smarter investment. We have already showed that taking a lump sum you will obviosly get less money in the beggining in comparison with annuity option. But chosing lump sum nobody is going to hide their winnings in a large cube of bills in a storage unit. The rational winner will put it in at least a bank account, or most rationally the market. Being a good investor or with the assistance of financial organization you can turn your lump sum into a lifetime income investing it with much higher interest rate than those provided by government bonds. More control of your money.

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