Suppose That Clint Wins a Lottery Jackpot of $300 Million

question 41

Multiple Choice

Suppose that Clint wins a lottery jackpot of $300 million.He can receive it over the next 30 years in annual payments of $10 million, or he can receive a lump sum of $100 million immediately.Assuming that taxes are not a consideration, should Clint take his winnings as a lump sum?

• A)Yes, but only if rapid inflation is expected over the next 30 years.
• B)Yes, but only if deflation is expected over the next 30 years.
• C)No, the rate of return will always be higher with the 30 annual payments.
• D)Yes, if he can invest in financial assets that will yield greater returns than the interest rate implicit in the annual payments.

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Definitions:

Investment Company

A corporation or trust engaged in the business of investing the pooled capital of investors in financial securities, such as stocks, bonds, and other assets.

Liabilities

Financial obligations or debts that a company owes to others, which must be paid back in the future.

Vanguard 500 Index Fund

A mutual fund that aims to replicate the performance of the S&P 500 Index, providing investors with broad exposure to 500 of the largest U.S. companies.

S&P 500

A financial index measuring the performance of the top 500 large-cap companies on U.S. stock exchanges.