Q 10.48. The lottery gives you a 1 in 14 million chance of winning the jackpot. It
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Q 10.48. The lottery gives you a 1 in 14 million chance of winning the jackpot. It promises $20 mil- lion to the lucky winner. A ticket costs $1. Alas, the lottery forgot to mention that winnings are paid over 20 years (with the first $1 million payment occur- ring immediately), that inflation is 2% per year, and that winnings are taxable. Is the lottery a good in- vestment? (Assume that you are in a 40% marginal income tax bracket and that the appropriate nominal discount rate is 10% per year.)
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