Maximize Your Lottery Winnings - Cash flow diagrams for lump sum equivalency

Описание к видео Maximize Your Lottery Winnings - Cash flow diagrams for lump sum equivalency

Few of us have the privilege of deciding whether to take the lump sum or annuity when we win the lottery jackpot, but the problem is a good illustration of how to use cash flow diagrams to understand the equivalence of money flows over time. This video presents the equation necessary to evaluate the discount rate (i.e., internal rate of return) that makes the lump sum option equivalent to the annual payments. Most people take the lump sum, because their preference is for money now, compared to later. And maybe they think they can invest the money at a higher rate of return than the typical equivalent discount rate, anyway.

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