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Question 31 of 31 in Basics

What does it mean when a state lottery advertises the “annuity value” of the winning amount?


Instead of paying the winnings in a lump sum, they will pay installments. Since the installments include some investment earnings, the total number of dollars will be larger than if the prize is taken immediately in cash. But the present value of dollars to be paid in the future is worth less than dollars paid today. Therefore, the total prize will be the same no matter which way you take it. Lottery commissions sometimes buy actual annuities from insurance companies to pay off winners.
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