Why is the lump sum payment lower than the annuity payment?

[Julio88]

The lump sum payment in a lottery is typically lower than the annuity payment because of the value of money over time. When you're paid in a lump sum, you get the full amount of the jackpot right away, but you also miss out on the interest that the money would have earned if it had been paid out over time. When you're paid in annuities, you get smaller payments over a period of time, and the money can earn interest over that time. This means that the total amount of the annuity payments will be higher than the lump sum payment

 

[James108]

The main reason is due to the time value of money. This is because a dollar today can be invested and earn interest, while a dollar in the future will be worth less due to inflation. However, even though the lump sum payment is lower, it still offers the opportunity for a large, one