Question
In: Finance
I just bought a $1 lottery ticket with a promised jackpot of $90 million dollars. The...
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I just bought a $1 lottery ticket with a promised jackpot of $90 million dollars. The lottery claims that my odds of winning the jackpot are 1 in 20 million, so it seems like a good deal. The jackpot is paid in 30 equal annual installments with the first one paid today. The winnings are also taxable; my marginal tax rate is 25% and the appropriate discount rate is 5% annually. Was the lottery ticket a good investment? What is the expected value of the lottery ticket?
Solutions
jeff jeffy answered 1 week agoRelated Solutions
Who Wants to Be a Millionaire? You just won $1 million dollars in the lottery! They...
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...
Assume that you just hit the $9 million jackpot in a lottery, which promises you a...
Assume that you just hit the
$9
million jackpot in a lottery, which promises you a payment
of
$3
million for the next three years. Since we've established that
the jackpot will not be worth
$9
million in today's dollars, how much is it worth if the
interest rate is
12
percent? (Hint: the first payment is made immediately.)
$nothing
million
1. Assume I won 5 million dollars in a lottery that pays installments of 1 million...
1. Assume I won 5 million dollars in a lottery that pays
installments of 1 million dollars a year for five years or a lump
sum of less than 5 million dollars. If I take the installments, my
first installment would come the day I claimed my winnings at the
state lottery office. If I take the lump sum, I would receive that
payment the day I claimed my winnings at the state lottery office.
Assume that the interest rate...
You are planning to buy a lottery ticket for the $5,000,000 jackpot. If you have (Option...
You are planning to buy a lottery ticket for the $5,000,000
jackpot. If you have (Option A). the cash option of receiving
$5,000,000 today or you can opt to choose (Option B). the 20
payments of $400,000. Your investment account earns 6% interest
compounded annually.
What is the present value of OPTION B? (Please use two
decimals).
You are planning to buy a lottery ticket for the $5,000,000 jackpot. If you have (Option...
You are planning to buy a lottery ticket for the $5,000,000
jackpot. If you have (Option A). the cash option of receiving
$5,000,000 today or you can opt to choose (Option B). the 20
payments of $400,000. Your investment account earns 6% interest
compounded annually.
What is the future value of OPTION A? (Please use two
decimals).
1. Assume I won 50 million dollars in a lottery that pays installments of 10 million...
1. Assume I won 50 million dollars in a lottery that pays
installments of 10 million dollars a year for five years or a lump
sum of less than 50 million dollars. If I take the installments, my
first installment would come the day I claimed my winnings at the
state lottery office. If I take the lump sum, I would receive that
payment the day I claimed my winnings at the state lottery office.
Assume that the interest rate...
Assume that you just hit the $30 million Jackpot in the New York State Lottery, which...
Assume that you just hit the $30 million Jackpot in the
New York State Lottery, which promises you a payment of$1 million
for the next thirty years. You are clearly excited, but have you
really won $30 million? Assume that the bank interest rate is 7.5%
per annum. What is the Present Value of the lottery?
A lottery jackpot of $220 million will be paid out in the following sequence. Year 1:...
A
lottery jackpot of $220 million will be paid out in the following
sequence.
Year 1: $20 million
Years 2-5:$30 milloon
After Year 6-7:$40 million
however the winner has the choice to except a lump sum payment
right now. If the winner could invest a lump sum payment and earn
7%, what is the minimum lump sum payment the winner should
except?
1) You buy a lottery ticket to a lottery that costs $10 per ticket. There are...
1) You buy a lottery ticket to a lottery that costs $10 per
ticket. There are only 100 tickets available to be sold in this
lottery. In this lottery there are one $500 prize, two $100 prizes,
and four $25 prizes.
Show its probability distribution in the form of a table.
What is the standard deviation of your gain or loss?
What type of skewness does the probability distribution
represent?
Assignment Eight 1. Assume I won 5 million dollars in a lottery that pays installments of...
Assignment Eight 1. Assume I won 5 million dollars in a lottery
that pays installments of 1 million dollars a year for five years
or a lump sum of less than 5 million dollars. If I take the
installments, my first installment would come the day I claimed my
winnings at the state lottery office. If I take the lump sum, I
would receive that payment the day I claimed my winnings at the
state lottery office. Assume that the...
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