Winning the lottery: Made simple with TC
In Module 2 of TC Finance, a lot of time was spent learning about present value and financial arithmetic, which was useful knowledge for this lottery winner!
This is the module that contains time value of money calculations, annuities, perpetuities, and effective interest rates, and so on. Some students may think: “I don’t know why I need to learn this stuff. I just plan to win the lottery and then I’ll never need to think about perpetuities or annuities or anything like that ever again!”
However, Charlie Lagarde, a Canadian teenager who has just emerged as a rock star of financial arithmetic, would like you to think otherwise.
How finance knowledge helped lottery winnings
As reported on BBC News, Miss Lagarde - like all of us dream of one day doing - won the Canadian lottery.
And just like in one of our Workshop Exercises from Module 2, Miss Lagarde was faced with an unenviable financial pickle. Accept a one-off amount of $1m? Or receive $1,000 every week for life?
Having studied TC Finance, you would know exactly what to do in this position: reach for your scientific calculator.
The BBC article details some of the considerations that have to be made, including an approximation of the required rate of return, the need for immediate financial return (perhaps for buying a house, or a giant balloon to celebrate an 18th birthday), and average life expectancy.
Miss Lagarde chose the weekly payment, and financial experts are in agreement that this was the correct choice. But what would you have chosen? And how would Module 2 of TC Finance have helped you choose it?
Take care out there and remember, in studying with ICAS, some would consider themselves to have already won the lottery.