The winner of lotto prize is given the choice of a one time payment of $1,000,000 or a guaranted $80,000 per year for 20 years. If the value of money is 5%, which option should the winner choose?
The decision of whether to take the one-time payment of $1,000,000 or a guaranteed $80,000 per year for 20 years is an important financial decision. The choice should be made based on the individual’s long-term goals and risk tolerance.
The one time payment of $1,000,000 may appeal to some people because it offers the chance to invest or spend all the money at once. However, if inflation rises over the next twenty years this could have a negative effect on the purchasing power of that money in real terms. In addition there are risks associated with investing large amounts of money all at once such as market volatility and lack of diversification which could lead to losses.
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