The Lotto Jackpot: The Lump Sum Versus the Annuity

FINANCIAL PRACTICE AND EDUCATION, Fall/Winter 1995

Posted: 29 Apr 1998

See all articles by Allen B. Atkins

Allen B. Atkins

Northern Arizona University - Department of Finance; University of Arizona

Edward Alexander Dyl

University of Arizona

Abstract

Lotto players who win the jackpot must choose to receive their winnings as either an annuity or a lump sum. Students in an introductory finance class can determine the best alternative, applying their knowledge of present value and tax considerations to an interesting 'real world' financial decision. Using the current lottery in your state further piques the students' interest. The lump sum payment is taxed immediately, whereas the annuity payments are taxed when they are received. Analysis of a $6,000,000 jackpot shows the annuity netting the winner $686,899 more than the lump sum.

JEL Classification: A20, E62

Suggested Citation

Atkins, Allen B. and Dyl, Edward A., The Lotto Jackpot: The Lump Sum Versus the Annuity. FINANCIAL PRACTICE AND EDUCATION, Fall/Winter 1995, Available at SSRN: https://ssrn.com/abstract=7650

Allen B. Atkins

Northern Arizona University - Department of Finance

University of Arizona ( email )

Department of History
Tucson, AZ 85721
United States

Edward A. Dyl (Contact Author)

University of Arizona ( email )

Department of Finance
Tucson, AZ 85721
United States
520-621-9534 (Phone)
520-621-1261 (Fax)

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