El Gordo

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El Gordo (Spanish for "the fat one") is the grand prize in the Spanish Christmas Lottery, and the term is used colloquially to refer to the grand prize of any lottery. If you win El Gordo in Powerball, should you take the lump sum payment or the annuity?


It depends on the rate of return you can obtain. The chart in this Demonstration shows the growth of your winnings for investments of the lump sum and the annuity at different rates of return with optional pocket change withdrawn yearly over 30 years. The lump sum is approximately 55% of the grand prize. The annuity pays the grand prize over 30 years at a rate that increases by 4% every year. The calculations assume a 40% income tax for the winnings.


Contributed by: Clay Gruesbeck (July 2014)
Open content licensed under CC BY-NC-SA




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