who wants to be a millionaire?

Question

Who Wants to Be a Millionaire?

You just won $1 million dollars in the lottery! They offer you two options for your winnings: a lump sum payment right now, or $100,000 a year over the next 10 years. Current 10-year interest rates are at 5%, and the current tax on lottery winnings is 40%.

What is the amount you will receive today with the lump sum option?

Which option would you select? How would you present your argument for your decision in a debate?

Sorry, you didn’t win the lottery, but here’s a way you can still be a millionaire! Starting at age 22, every night you take $5 out of your pocket and put it in a manila envelope (title it “Lottery Winnings”). At the end of the year, you place the money from the envelope in a stock fund with an average interest rate of 10%.

How much will you have in the account when you retire at age 65?

What would be different if you started this plan later in your life?

Answer 1

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Please find below the answer
Statement showing Computations
Particulars	Amount
Option 1
Amount before tax	1,000,000.00
Tax at 40%	(400,000.00)
amount you will receive today with the lump sum option = 1,000,000 - 400,000	600,000.00
Option 2
Amount before tax	100,000.00
Tax at 40%	(40,000.00)
Amount after tax	60,000.00
PVF for 10 years at 5%	7.7217
Present value of payments	463,304.10