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Show steps Congratulations! You have just won $20 million lottery. You will be paid $1 million...

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Congratulations! You have just won $20 million lottery. You will be paid $1 million a

      year for the next 20 years – and you receive your first check today. Ignoring, for the

      moment, the taxes you’ll have to pay, what are your winnings really worth today?

            Assume an 7% discount rate.  

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Answer #1

Ans:- we will use the PV function of excel to find the Present Value.

For PV, Rate=7%, Nper=20, Pmt=-$1000,000, FV=0, TYPE=1 (since the withdrawal is at the beginning of the period).

Note:- In the excel function, we put TYPE=0, when investment or withdrawal is done at the end of every period (ordinary annuity) and TYPE=1 when it is done at the beginning of every period. (annuity due).

Therefore, the Present Value of the lottery today is $11,335,595.24.

Note:- If this answer helps you pls give thumbs up.

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