Lottery loot later? You have a big problem: You’ve just scratched off an instant lottery ticket and discovered that you hit the jackpot and won $50,000! The lottery folks inform you that you will receive five annual paym ents of $10,000. Sounds good. As this is soaking in, a very genteel bookie named Jimmy “The Wallet” Banana offers to buy your winning ticket for $45,000 in a lump sum. If in either case, you were to deposit your winnings into a savings account paying 3% compounded annually, how much money would you have by the fifth year (at the moment the lottery folks pay off the last $10,000) in each scenario? Is the Banana making you an offer you can’t afford to refuse?
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