Block, SkipCaptcha, apieditor, Automoderated users, Bots, edit, ratelimit-exempt
59,161
edits
Changes
Jump to navigation
Jump to search
Line 13:
Line 13: − +
→top: Cleanup and Spell Check
Another example of Present Value versus Future Value is found in state lotteries that offer a "cash option" for jackpot payouts. Large jackpots are typically paid out in installments over 20 years from an interest-bearing account, and the jackpot amount includes the interest that would have been earned over the 20 years. If a winner chooses to receive the payoff up front "in cash", then the amount they receive is lower than the stated jackpot, ''but has the same Present Value as the Future Value of the full jackpot 20 years from now''. If the winnings are responsibly invested at a higher return than the bank account use by the lottery, then taking less money up front is the smart choice, because it's still the full ''Present Value'' of the prize.
Another example of Present Value versus Future Value is found in state lotteries that offer a "cash option" for jackpot payouts. Large jackpots are typically paid out in installments over 20 years from an interest-bearing account, and the jackpot amount includes the interest that would have been earned over the 20 years. If a winner chooses to receive the payoff up front "in cash", then the amount they receive is lower than the stated jackpot, ''but has the same Present Value as the Future Value of the full jackpot 20 years from now''. If the winnings are responsibly invested at a higher return than the bank account use by the lottery, then taking less money up front is the smart choice, because it's still the full ''Present Value'' of the prize.
[[Category: Economics terms]]
[[Category:Economics terms]]