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Crouse, a financial planner and certified public accountant in Portland, Oregon. From this article we read: Crouse ran numbers to help determine whether it's better to take a windfall in payments over time - an annuity - or in a lump sum. Crouse used the Powerball jackpot as an example to determine which pays off in the long run: the ticket that pays the winner $ 104.3 million now or pays $ 7.7 million annually for 25 years. (Both are before taxes.) The annuity represents a 5.4 percent return. That sounds easy to beat if you take the lump sum and invest it - until you consider the huge negative effect of paying all the taxes up front instead of over 25 years. Figure 45 percent of the payout - $ 46.9 million - goes to state and federal taxes right off the bat If you invest the remaining $ 57.4 million and receive an average return of 8 percent, you still can't beat the annuity. After all taxes are paid, you receive $ 4,235,000 annually for the annuity vs. $ 3,991,000 for the lump sum you invested at 8 percent. Beyond about a 9 percent return, you start to beat the annuity Of course, one should consider the fact that the annuity is a guaranteed payment while your investments are subject to the volatility of way you invest your money. Well, at least with the lump sum above, we convinced ourselves that we had a favorable game. Alas, there is another rub. We have been implicitly assuming that if we hold the lucky numbers, we will get the whole prize! But if other ticket holders have selected the same numbers, the jackpot will be split. This will be a particularly important factor when large number of tickets are sold. As the jackpot grows, an increasing number of tickets are sold. For the July 29, 1998 the Jackpot was a new record 295.7 million dollars and 210,800,000 tickets were sold. The chance of having to share the pot depends upon whether you chose the easy pick or chose your own numbers. This is because the easy pick numbers are all equally likely to occur but, as we shall see, this is not the case when people make their own choices. 9PDF Image | USING LOTTERIES IN TEACHING A CHANCE COURSE
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