If you won the lottery should you take a lump sum or an annuity? Why?

Expert Solution

I am into the business and categorise myself to be an active rational investor. If I win a lottery and have to make a choice to take a lump sum or an annuity, my preference will be the lump-sum payment of the lottery winnings. Lump-sum payoff will provide me a single full payment made all at once, in lieu of many small payments made at infrequent or regular intervals. When I select the lump-sum payment, I will be required to pay the taxes on that money but would know what exact amount I would have left. I will prefer to pay off my mortgage and many other debt related purchases such as school debt, car loans, and credit card debt. As a rational investor I will invest the remainder amount in the expansion of my business and financial products which generate higher yield. Moreover lump-sum allows accessing the funds for emergencies and also flexibility in terms of how the amount is distributed in comparison to annuity payments.

ekkarill92 answered 2 years ago

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