Pv Lump Sum V Annuity Payment for Lotto Jackpot

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Choosing a Lump-Sum Payout or Annuity Payout for Mega Millions Jackpots: The Better Choice from a Present Value Perspective Managerial Finance FINA 5303 Wayland Baptist University Table of Contents Introduction 3 Literature Review 3 Model 6 Results of Model 9 Summary and Conclusions 11 Appendices 13 References 14 Introduction For centuries, people have participated in various forms of lotteries. One of the earliest records of a lottery dates back to May 9, 1445 in L'Ecluse, France where the city raised funds to build walls and town fortifications. The lottery sold 4,304 tickets and awarded 1,737 florins in total prize money (Shelley, 1989). Today, lotteries offer payouts in the millions of dollars and are among the most popular games offered across the United States. One of the most-popular, and largest, lotteries offered is the Mega Millions game. Mega Millions, which began on August 31, 1996 as the Big Game, is a U.S. multi-jurisdictional $1 lottery game played in 44 jurisdictions: 42 states plus the District of Columbia and the U.S. Virgin Islands. Since it replaced The Big Game in May 2002, Mega Millions' advertised jackpots have started at $12 million, paid in 26 yearly installments (unless the cash option is chosen), increasing when there is no jackpot winner. The Mega Million annuity is an annuity due, where the periodic payments are made at the beginning of the period, as opposed to a regular annuity where the payments are made at the end of each period (Mega Millions). Mega Millions holds the record for the largest jackpot in North American history, a $656 million dollar jackpot won on April 30, 2012. In January 1999, Mega Millions provided its players with the option of choosing between a cash option payout and a 26-year annuity payout (Mega Millions). This paper examines the differences between the Mega Millions’

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