Example on lotteries in the united states, Microeconomics

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Most lotteries in the United States pay their winnings over time. For illustration, a million-dollar winner will receive $100,000 initially and the rest in equal installments over the next 9 years. On the basis of this information, are the winners truly millionaires? Please, provide a calculation example.

ANSWER: Any million-dollar winner of a lottery who gets the winnings over time is not truly a millionaire if by that term we mean someone who has a total worth of one million dollars. With interest rates at 10% and the winnings to be paid over ten installments, the current value of a million-dollar lottery ticket is no more than $675,902.30. That is the most that any winner would expect to receive when selling the rights to his or her winnings to another investor.


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