1 the lottery gives you a 1 in 14 million chance of winning, Ask an Expert

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1. The lottery gives you a 1 in 14 million chance of winning the jackpot. It promises $20 million to the lucky winner. A ticket costs $1. Alas, the lottery forgot to mention that winnings are paid over 20 years (with the first $1 million payment occurring immediately), that inflation is 2% per year, and that 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.)

2. a. Why does the average mutual fund in the market today appear to have been a great performer? Give a one-sentence answer.

b. Does this evidence suggest that these funds will be good performers in the future, at least on average?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92808824

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