From: edgar@spectrx.sbay.org (Edgar W. Swank) Date: Mon, 04 Jul 94 04:05:27 PDT My thanks to Tim for his comments on my post: Maybe, but the state has a wonderful scam of paying off a "5 million dollar jackpot" over 20 years; the true value (what the same deal would cost you to buy as an annuity) is less than $5 M, possibly much less. If private outfits did this, they'd be jailed. Publisher's Clearinghouse is a private outfit which does this. Yes, but the return is still 50%. I have no idea whether the return on California Lotto is 50%, however if this claim ignores the discounted value of future cashflows, that is, the fact that a dollar that you have today is worth more than a dollar that you will receive in the future, then it is a bogus claim. > Calculation of "x" is not "simple", since you also have to figure in > the 20-year (with no interest) payout of large prizes. Oh, I see you mentioned this scam. (Calculation should still be simple, as any spreadsheet can handle discounted present values and the like.) Not simple for me. If it's simple for you (or anyone reading this) I would be interested in the results of the calculation. Recall "x" is either the number of times the jackpot must be passed or the nominal value of the grand prize for which there is a positive return for the player (assume no prize split). You might work this out for time values of money of 5-10-15% per annum. This guesswork is unnecessary as their is an active and liquid market for future dollars. If your maximum prize is $10MM divided into 30 annual cashflows, you can go out to the market and price comparable securities to determine the fair market value. In fact, if you just won, you can go out today and sell your future cashflows for their discounted value. If you want to skip the bond math, you could get a reasonable ballpark on a lower bound by looking at the prices on 30 year treasuries, as long as you realize that you are ignoring differences in credit risk and cashflow schedules. Rick