You win your state lottery. The lottery officials offer you the option of taking your winnings in one lump-sum payment, or fixed annual payments for the next 20 years. The sum of the 20 annual payments is larger than the lump-sum payment. Before deciding, what are the key factors you will want to consider that could influence your decision?
What will be an ideal response?
Although this is certainly a pleasant decision to think about, the options presented do require serious thought. You should start by finding the interest rate that equates the present value of the 20 payments with the lump sum. Next, compare this rate to the interest rate you think you could safely earn on the lump-sum if you invested it. If the market offers a higher interest rate, then this is a reason you may wish to take the lump sum. Although morbid, you should also consider your own life expectancy. If you do not think you are going to live another 20 years, you would certainly want to take your winnings early. Lifestyle is also important as is the degree of risk aversion you exhibit. One advantage to taking the payments over 20 years is that it is a form of expenditure discipline that may prevent you from going through the funds quickly (though it is highly likely that you will find plenty of sources that will loan you funds for the assignment of the winnings to them). If you are a person that benefits from external discipline, the 20-year payout may be more attractive. While this certainly is not an exhaustive list, it does show that many of the factors discussed in the chapter come into play in making a decision such as this on needs external discipline, the 20-year payout may be more attractive. While this certainly is not an exhaustive list, it does show that many of the factors discussed in the chapter come into play in making a decision such as this one.
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Profit maximization implies that firms will want to ________
A) accumulate capital while the MPK is greater than the real wage B) accumulate capital while the MPK is greater than the rental price of capital C) accumulate labor while the MPK is greater than the rental price of capital D) accumulate labor while the MPK is greater than the real wage E) none of the above
The largest portion of ________ comes from the individual income tax.
A. local municipality revenues B. state revenues C. federal government revenues D. All of the above are correct.
Two common economic problems that may arise from asymmetric information are:
A. moral hazard and adverse decisions. B. moral consequence and adverse decisions. C. moral consequence and adverse selection. D. moral hazard and adverse selection.
Which of the following statements is most accurate about women's involvement in the labor force?
a. Over half of the women who entered the labor force between 1940 and 1944 had dropped out by 1950. b. Between 1940 and 1950 the number of women employed in the labor force dropped. c. After World War II, the supply of young married women available to work increased. d. Women made their largest gains in employment in the service and agricultural sectors.