posted by Jessie on .
Suppose the chances of winning the lottery are 1 in 14 million with the earnings of $20 million to the lucky winner. A ticket costs $1. However, the winnings are paid over 20 years, with
the first $1 million payment occurring immediately. If inflation is 2% per year ,and the winnings are taxable, is the lottery a good investment? (Assume that you are in a 40% marginal income tax bracket and that the appropriate nominal
discount rate is 10% per year.)