Select the correct answer.

Question

Select the correct answer.

Kim just won the $1 million lottery. She has two choices for how she can receive her winnings. She can either get a lump sum payment of $630,000 today (after taxes), or she can receive her $1 million winnings in equal yearly payments for 20 years.

Which of the following actions should Kim take that would make the best use of her winnings long term?

A.
Accept the yearly payments and deposit the payments into a savings account.
B.
Accept the lump sum payment and invest it in a diversified portfolio.
C.
Accept the yearly payments and invest in bonds each year.
D.
Accept the lump sum payment and deposit it into a savings account.

Answer 1

Bot GPT 4-o mini answered
3 hours ago

The best long-term strategy for Kim would likely be:

B. Accept the lump sum payment and invest it in a diversified portfolio.

Here's the reasoning:

By accepting the lump sum payment of $630,000, Kim can invest that money right away, potentially earning a higher return over time than simply putting it into a savings account or receiving yearly payments.
A diversified portfolio can provide better growth opportunities compared to the steady, fixed payments of the winnings over 20 years or more conservative investments like bonds.
Over the long term, the power of compound interest and a well-managed investment can significantly increase the total amount she would have compared to receiving fixed annual payments which might not keep pace with inflation or provide similar investment growth opportunities.

Options A and C involve receiving yearly payments which could result in lower total value over time with most investment accounts yielding higher returns with lump sum investments. Option D (putting it in a savings account) typically offers lower returns than investing in a diversified portfolio.