Lottery winnings are priced by discounting the future payments by a discount rate. This discount rate can vary widely from 8% to 15% or more depending on the buyer. The lower the discount rate, the more you should receive for your lottery.
There are several factors in determining what discount rate to use, here are the most common:
-Type a lottery winnings i.e. certain cash flows or life contingent.
-Market conditions i.e. current interest rate
-Buyer's experience, profit target, and funding sources
-Each potential buyer will individually determine how these factors are used to arrive at a price for your note. Pricing can vary greatly by buyer.
Check out these links for more information:
Time Value of Money- Wikipedia
Lottery Payments- Wikipedia
* Please consult a lawyer, licensed insurance agent, securities broker, or other financial professional for advice regarding your personal situation.
By John Weimer, CFA
For more information, please go to MyNoteMarket.com
Tuesday, January 8, 2008
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