Question

7.) You win a lottery prize that has a total value (after taxes) of $35,850,000. 30 yearly payments of

$1,195,000 would be made if you took the winnings over the 30 year payout with the first

payment being made immediately and the remaining equal payments being made yearly at the

beginning of each year. The lottery would buy an annuity which has an annual interest rate of

5.2%. You elect the alternative and take the cash value of this annuity now. You calculate that

you can make more money by investing the winnings at a higher rate than 5.2%. What is the

cash value of this annuity?

Answer #1

On January 1, you win $4,240,000 in the state lottery. The
$4,240,000 prize will be paid in equal installments of $530,000
over 8 years. The payments will be made on December 31 of each
year, beginning on December 31. If the current interest rate is 6%,
determine the present value of your winnings. Use the present value
tables in Exhibit 7. Round to the nearest whole dollar.

Congratulations! You have just won the State Lottery. The
lottery prize was advertised as an annuitized $105 million paid out
in 30 equal annual payments beginning immediately. The annual
payment is determined by dividing the advertised prize by the
number of payments. You now have up to 60 days to determine whether
to take the cash prize or the annuity.
a. If you were to choose the annuitized prize, how much would you
receive each year?
b. The cash prize...

Present value of an annuity On January 1, you win $50,000,000 in
the state lottery. The $50,000,000 prize will be paid in equal
installments of $6,250,000 over eight years. The payments will be
made on December 31 of each year, beginning on December 31 of this
year. The current interest rate is 5.5%. This information has been
collected in the Microsoft Excel Online file. Open the spreadsheet,
perform the required analysis, and input your answers in the
question below. Open...

Lottery problem. You win a lottery of $10
million. You have the following two options to receive it. First,
to receive $1million each year at the end of each year for 10 years
(annuity option). Second, to receive $5 million right now (cash
option). Make sure that you draw the timelines for the two options
in order to understand the alternatives. Show your work in
answering the questions.
a) What is the present value of the annuity option?
Assume the...

The North Carolina Lottery Commission has just informed you that
you have won a valuable prize! The amount is to be paid out at the
rate of $70,000 a year for the next 20 years.
With a discount rate of 13 percent, what is the present value of
your winnings? (Do not round intermediate
calculations. Round your final answer to 2 decimal
places.)

You win the lottery and are given the option of receiving
$250,000 now or an annuity of $25,000 at the end of each year for
30 years. Which of the following is correct?
a. If you know the interest rate, you can calculate the present
value of each option, and pick the one with the lower present
value
b. You will always choose the annuity
c. You will choose the lump sum payment if the interest rate is
7%, compounded...

You have just won the Life’s Downhill after 30TM
lottery. The lottery payments will be made for the next 30 years.
The payments are slightly unusual in that you will be paid $500,000
every six months starting six months from today for a total of 60
payments. You will also receive $1,200,000 every nine months
starting nine months from today for a total of 40 payments. When
the payments coincide, for example 18 months from today, you will
receive both...

The $40 million lottery prize that you have just won actually
pays out $2.0 million a year for 20 years. The interest rate is
8.0%.
a. If the first payment comes after 1 year,
what is the present value of your winnings? (Do not round
intermediate calculations. Enter your answer in millions rounded to
2 decimal places.)
Present Value _____________ Million
b. What is the present value if the first
payment comes immediately? (Do not round intermediate
calculations. Enter your...

You have just won the Georgia Lottery with a jackpot of
$53,000,000. Your winnings will be paid to you in 26 equal annual
installments with the first payment made immediately. If you feel
the appropriate annual discount rate is 14%, what is the present
value of the stream of payments you will receive?

How much is an electronic lottery prize worth today that would
be paying you $ 45,000 per year for the next 20 years if the
discount rate is 4.0% (Note: taxes have already been deducted from
the annuity)?
a)$ 611,565
b)$ 936,000
c)$ 565,346
d)$ 450,565
e)$ 900,000

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