Assignment Details: Who Wants To Be A Millionaire You Just W

Question

Assignment Detailswho Wants To Be A Millionaireyou Just Won 1 Millio 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? Sorry, you didn’t win the lottery, but here’s a way you can still be a millionaire! Starting at age 22, every night you take $5 out of your pocket and put it in a manila envelope (title it “Lottery Winnings”). At the end of the year, you place the money from the envelope in a stock fund with an average interest rate of 10%. How much will you have in the account when you retire at age 65? What would be different if you started this plan later in your life? Your submitted assignment must include the following: Submit a double-spaced Word document of 1–2 pages that contains your answers to the four questions listed in the assignment description, any calculations you performed, and all formulas that were used. Also, in the Word document, insert an Excel spreadsheet that shows how you arrived at your answers, or screenshot of the online calculator utilized with your answers shown. The use of 3 scholarly sources is required.

Dr. Jack HW Helper · Accepted Answer

The scenario presents two financial options following a lottery win of $1 million, complicated by the presence of taxes and interest rates that influence their present value. Additionally, the non-lottery scenario explores consistent savings and investment behavior over time, highlighting the power of compound interest and systematic saving strategies to achieve substantial wealth by retirement age. Choice Between Lump Sum and Annuity The first question involves determining the present value of the lottery winnings under the two payout options: a lump sum or an annuity of $100,000 annually for ten years, considering a 5% annual interest rate and a 40% tax rate. To estimate the lump sum, we need to understand the after-tax amount the winner could receive immediately. The gross amount awarded is $1,000,000. After a 40% tax, the net winnings reduce to $600,000. This gross amount, when subjected to a present value calculation, depends on the discount rate—here, 5% over ten years. The present value (PV) of the annuity payout can be computed using the present value of an ordinary annuity formula: PV = P × [(1 - (1 + r)^-n) / r] where P = $100,000, r = 0.05, and n = 10. Plugging the values: PV = $100,000 × [(1 - (1 + 0.05)^-10) / 0.05] ≈ $100,000 × 7.7217 ≈ $772,170 After taxes, the present value of the annuity is 60% of $772,170, which is approximately $463,302. But the lump sum option involves taking the net amount immediately, which is $600,000, before taxes, or $360,000 after taxes. Given this, the winner should evaluate whether the immediate amount of $360,000 (post-tax) or the discounted value of the annuity—roughly $463,302—matches their financial goals and preferences. An argument in favor of the lump sum might focus on immediate access and investment opportunities, while choosing the annuity protects against market risk and ensures steady income. Retirement Savings Strategy The second scenario involves saving $5 nightly, which totals approximately $1,825 annually

Assignment Details: Who Wants To Be A Millionaire You Just W

Assignment Detailswho Wants To Be A Millionaireyou Just Won 1 Millio

Paper For Above instruction

Choice Between Lump Sum and Annuity

Retirement Savings Strategy

Conclusion

References