Repairman wrote:
Over a 30 year period, EVERYTHING has a default risk, including even the mighty US government. Orange County went bankrupt,
Chances of the federal government defaulting are slim to none. If worse comes to worse, the federal government can always print money to pay their obligations, something a municpality like Orange County cannot. Of course, that would result in some pretty disastrous inflation, but they wouldn't technically default.
Repairman wrote:
Over a 30 year period, EVERYTHING has a default risk, including even the mighty US government. Orange County went bankrupt, as someone else said Enron and other things people thought were sure things turned out to be huge mistakes in just a few short years - over 30 years who knows what things will look like. Since the PV of the annuity and the lump sum are the same (assuming the powerball uses a reasonable discount rate) you should take that money NOW. That's what I did with the $3 I won on the last powerball. Too bad it cost me 10 bucks to win it.
I never said that there was anything that was risk free. What are these zero coupon bonds or whatever they buy? My point is, if you take the money NOW, you're going to invest it in something, just like the lottery does, and your investments are going to have risks. I don't see how you can say, "I don't trust the government with my money because they might default on the annuity payments." If that is your position, then everything is a risky investment and you're screwed no matter what.
I wouldn't take the annuity, but that's not because I'm afraid it's too high risk. I think it's too low risk, and I would put the money into more aggressive investments to earn higher returns than the 4% that the Powerball annuity pays.
I love threads like this.
How could the Present Value be less than $120MM
800 Guy wrote:
Present Value of Future Cash Flow Analysis:
Scenario #1 - Lump Sum of $120 million after tax
Assumptions:
Investment Rate of Return - 6.5%
Disount Rate - 4.5% (30-Year T-Bond)
Taxes - 50%
Result:
Present Value of Interest Cash Flow (30 years) - $63.53 mil
Present Value of $120 remaining investment @ 30 yrs - $32.04 mil
Combined Present Value - $95.57 million
Scenario #2 - $365 million paid over 30 Years
Assumptions: Straight-line annuity
Discount Rate - 4.5% (same as above)
Taxes - 50% (same as above)
Result:
Present Value of 30 Year annuity - $99.09 mil
Summary:
Based on these scenarios, it appears that an average investment rate of 6.5% results in an approximately equal present value between the two options.
Another poster stated that the annuity is not straight-line, as assumed in my calculation. I assumed straight-line, as I did not know the rate at which the annuity payments would increase. The impact of this would result in a lower Present Value on option #2, as payments in later years are worth less than payments today. If the annuity's cash flow stream is weighted toward later years (lower values), this obviously lowers the overall present value of the option. Due to this, the difference between the two scenarios is smaller than presented above, which is why I indicate the scenarios are approximately equal. Without knowing the exact rate of annuity payments increases, this statement is admittedly a leap of faith, but I think it is reasonable to assume the impact would be not much greater than the $3.5 million difference between the scenarios.
Always take the one-time payout. Always.
It is called payee risk. Here's an example:
http://abc7chicago.com/news/illinois-lottery-is-not-paying-but-people-still-playing/1065516/
If you can't manage your money, don't play the lotto.
Stop
Someone correctly said that the Lotto computes how much they have to invest to guarantee the advertised prize. They offer you that as lump sum payout.
You bet I can invest better and take the lump or you say the risk is too high I'll take the asset as a revenue stream,.
There are tax burdens that fit into the decision but in a nut shell that is it.
Are you a better investor than they are?
wineturtle wrote:
Are you a better investor than they are?
Not if you played the lottery.
tax on math illiterate wrote:
wineturtle wrote:Are you a better investor than they are?
Not if you played the lottery.
Do you feel paying for two movie tickets and a malt with two straws is always a poor investment? Poor ROI?
I believe if the cost of the lotto ticket comes from discretionary funds/entertainment budget not from the food or roof over your head budget there is a positive value gained from engaging the 'what if' dream. Dreaming for a better life can be positive if the dreamer uses it as a motivation to actually go out and make his life better.
Remember Lets Run is where your dreams become reality.
NONE of them if they do it right.
RIP: D3 All-American Frank Csorba - who ran 13:56 in March - dead
Great interview with Steve Cram - says Jakob has no chance of WRs this year
RENATO can you talk about the preparation of Emile Cairess 2:06
Hats off to my dad. He just ran a 1:42 Half Marathon and turns 75 in 2 months!
2024 College Track & Field Open Coaching Positions Discussion
adizero Road to Records with Yomif Kejelcha, Agnes Ngetich, Hobbs Kessler & many more is Saturday