Ask Question
7 December, 14:26

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?

+3
Answers (2)
  1. 7 December, 15:07
    0
    using the lump payment the winner will receive $600000 today I would prefer the option 2 which involves part payment of $100000 yearly over 10 years because the interest rate over the years is lower which leads to the winner having receive a higher amount at the end of the payment period than the payment received using the lump sum payment.

    Explanation:

    The current tax on lottery winnings is 40%

    40% of $1000000 = 0.4 * $1000000 = $400000

    remaining amount = ($1000000 - $400000) = $600000

    with the option 1 which is the lump sum payment the winner of the lottery will receive = $600000 after tax has been deducted

    Option 2

    $100000 per year for 10 years at 5% interest rate per year

    5% of $100000 = 0.05 * $100000 = $5000

    in 10 years time the total interest paid will be

    $5000 * 10 years = $50000

    with Option 2 the total money received in 10 years by the winner will be

    $1000000 - $50000 = $950000
  2. 7 December, 17:23
    0
    Take $100,000 a year over the next 10 years

    Explanation:

    Current tax rate is 40 %

    40 % 0f 1 million = 40/100 * 1,000,000 = 400,000 $

    Amount actually received will be $600,000

    Interest rates are 5 %

    5% of 100,000 = 5/100 * 100,000 = 5000$

    If we take 1 lac $ over the next ten years we will pay $5000 as interest.

    $5000 multiplied by 10 will be $50,000

    and $50,000 is much less than $ 400,000
Know the Answer?
Not Sure About the Answer?
Find an answer to your 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 ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers