Payout Annuity Problem: Jim won jackpot of $15 million

mathnovicesigh

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Hi Im trying to figure out how I should work ut the following problem:

[FONT=&quot]Let's say Jim recently won the Lotto jackpot of $15 million so he decided to buy the house of his dreams home ($4m), 2 luxury vehicles ($1.5m), a basket ball team ($2m) and a vineyard ($1.5m). The remaining $6m he plans to put into savings. However, when he went to collect his winnings he was shocked he had to pay 25% tax on his winnings! In addition, he is told that the 75% he expects to receive will be used to buy an annuity from an insurance company of your choice. From this company, he will be paid in monthly installments (at the end of every month) over the next twenty years. Providing that the rate the insurance company provides is 5%. What is the total worth of Jim's take-home winnings?Would he still be able to buy all of those items? What size of jackpot would have allowed him to buy all the items he wanted? [/FONT]

[FONT=&quot]Does anyone know how to solve this question?[/FONT]
 
Hi Im trying to figure out how I should work ut the following problem:

Let's say Jim recently won the Lotto jackpot of $15 million so he decided to buy the house of his dreams home ($4m), 2 luxury vehicles ($1.5m), a basket ball team ($2m) and a vineyard ($1.5m). The remaining $6m he plans to put into savings. However, when he went to collect his winnings he was shocked he had to pay 25% tax on his winnings! In addition, he is told that the 75% he expects to receive will be used to buy an annuity from an insurance company of your choice. From this company, he will be paid in monthly installments (at the end of every month) over the next twenty years. Providing that the rate the insurance company provides is 5%. What is the total worth of Jim's take-home winnings?Would he still be able to buy all of those items? What size of jackpot would have allowed him to buy all the items he wanted?

Does anyone know how to solve this question?

You have not adequately defined the problem.

1) What are "take-home winnings"? Isn't it just $11¼ million?

2) How do you define "total worth"? Isn't it just $11¼ million?

3) WHEN do you define "total worth". If you buy a payout annuity for $11¼ million, on the day that you buy it, it should be worth $11¼ million.

4) "Providing that...is 5%" doesn't mean anything. Will he get more or less if the interest rate is more or less?

5) Is he willing to wait to buy the desired things?

6) Any number of factor companies gladly will buy the payment stream at terrible (legal maximum) interest rates. If you buy the payouts at 5% and sell to the factor company at 25%, you will be shocked again when they tell you what they will give in exchange. Check the usury laws in the appropriate jurisdiction.

Where does that leave us?
 
Does anyone know how to solve this question?
Yes, tutors here can solve this question. If that is what you expect from this forum then you'll be disappointed as we will help you solve the problem. First can you tell us what you have done and where you are stuck?
 
Thank you all for responding. However this is a new topic and I do not understand anything about it. I have tried looking on Youtube but I'm even more lost. The qustion as I posted it is how it was given to me so I cant answer tkhunny's questions.
 
...this is a new topic and I do not understand anything about it.... The question as I posted it is how it was given to me so I can't answer tkhunny's questions.
So your class hasn't yet covered this topic, and the terms in the homework exercise have not yet been defined in class? That's... a problem. We need to know the definitions for the terms, before we can begin to assist. (This also explains part of why the volunteers here don't "do" students' work for them: if none of the exercise is understandable, obviously none of the solution would be, either!)

Please consult with the instructor regarding the missing information. Then let us know how far back you need the lessons to go (such as "how to find percentages, like tkhunny did, to get the '11.25' value"), and we'll try to find more-useful lesson links for you. Thank you! ;)
 
Okat thank you Stapel,

Our lecturer usually gives us a topic, we have to research it and then he assists. I usually do but this topic is the most challenging for me thus far, however I asked a classmate and she has a better understanding than I do. She's going to explain it to me, so thanks again for all the help .
 
Thank you Denis,

Some of the students have started a petition against him. Anyway so far I worked out:

Tax paid: $ 15,000,000.00 x 25%
15,000,000 x 25/100
$ 3,750,000.00
Total worth of take home winnings
Amount received: 15,000,000.00 – 3,750,000.00
= $ 11,250,000.00
Current Interest/ Return Rates in the market:
5%

He can withdraw $73,556.60 monthly.
Total interest earned: $6,403,584.58.

Can you still afford to buy all of those items?
Dream home ($4m) + 2 Vehicles ($1.5m) + Basketball team ($2m) + Vineyard ($1.5m) = $9,000,000.00 So he will not be able to afford to purchase all the items at once.


I worked it out with the explanation my friend gave me but I don't know if it is correct as she said she is not 100% clear as well. Sighs how can you give students questions for marks and not explain what to do.
 
Hey Denis,


Thank you for your help. My friend was indeed correct (for once in her life lol). That was our final assignment for the semester, just have to study for the final exam now. Thanks again to Denis and everyone that responded to my post!
 
My friend was indeed correct...

This my or may not be an appropriate determination. Without quite a bit of classroom discussion, that you didn't share with us, "Guessed Right" might be the highest possible praise.
 
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