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A lottery claims its grand prize is ​$20 ​million, payable over 5 years at ​4,000,000 per...

A lottery claims its grand prize is ​$20 ​million, payable over 5 years at ​4,000,000 per year. If the first payment is made​ immediately, what is the grand prize really​ worth? Use an interest rate of 8​%

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Answer #1

Lottery payment will be done by five annual equal payments and the payment starts starts now. It means payment starts at the beginning of the year. Payment will be at 0th, 1st, 2nd, 3rd & 4th year.

Annual Payment = $4,000,000

Interest Rate = 8%

What is the Present Worth?

PW = $4,000,000 + $4,000,000 (1 + 0.08) -1 + $4,000,000 (1 + 0.08) -2 + $4,000,000 (1 + 0.08) -3 + $4,000,000 (1 + 0.08) -4

PW = $17,248,507.36

The worth of the lottery will be $17,248,507.36

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