Question

You just won a $1 million lottery today, and the rule of the lottery is to...

You just won a $1 million lottery today, and the rule of the lottery is to pay you $40,000 per year for the next 10 years, followed by $60,000 per year for the following 10 years. The first payment starts one year from now. You estimated the appropriate interest rate is 10% pa, what is the winnings worth today?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1
Present Value = Future value/ ((1+r)^t)
where r is the interest rate that is .10 and t is the time period in years
Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Cash flow 40000 40000 40000 40000 40000 40000 40000 40000 40000 40000 60000 60000 60000 60000 60000 60000 60000 60000 60000 60000
present value 36363.64 33057.85 30052.59 27320.54 24836.85 22578.96 20526.32 18660.3 16963.9 15421.73 21029.63 19117.85 17379.86 15799.88 14363.52 13057.75 11870.68 10791.53 9810.479 8918.618
sum of present values 387922.5
Your winnings are worth $387922.5 today.
0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Show steps Congratulations! You have just won $20 million lottery. You will be paid $1 million...
Show steps 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.  
1.) You just won the $85 million lottery. You will receive $2.6 million a year for...
1.) You just won the $85 million lottery. You will receive $2.6 million a year for the next 30 years plus an additional payment of $7 million at the end of 30 years. The interest rate is 6 percent. How much is your lottery prize worth today? 2.)If you owe $51,000 payable at the end of eight years, what amount should your creditor accept in payment immediately if the interest rate on the loan is 13 percent? 3.) You have...
You just won $1 million dollars in the lottery! They offer you two options for your...
You just won $1 million dollars in the lottery! They offer you two options for your winnings: a lump sum payment right now, or $100,000 a year over the next 10 years. Current 10-year interest rates are at 5%, and the current tax on lottery winnings is 40%.   What is the amount you will receive today with the lump sum option? Which option would you select? How would you present your argument for your decision in a debate? Sorry, you...
Congratulations!!!!!! You just won a lottery. It will pay you $1,000,000 ten years from today. You...
Congratulations!!!!!! You just won a lottery. It will pay you $1,000,000 ten years from today. You were watching TV late last night and heard an ad for one of those companies willing to buy your lottery prize in ten years for an immediate single cash payment: a. What is the least you would sell the claim for if you can earn 6% on an investment of comparable risk? b. If 6 percent is the appropriate interest rate and the settlement...
2. You just won a Million Dollar lottery and you can choose one of the following...
2. You just won a Million Dollar lottery and you can choose one of the following two options to claim your winning. If you choose Option A, you will receive $40,000 every year for 25 years (40,000 x 25 = $1,000,000 hence the name), with the first payment to occur one year from today. But you may also choose Option B, in which case you will receive a single payment of $600,000 today. The applicable tax rate for the annual...
You have just been notified that you have won the jackpot in a lottery. You can...
You have just been notified that you have won the jackpot in a lottery. You can accept your winnings in one of the following cashflow streams. Assume you are not liable for any income taxes on the winnings. Compare the alternatives assuming a long-term average interest rate on any investments of 8%. (1) RM 900,000 per year for ten years, first payment received immediately. (2) RM 750,000 per year for twenty years, first payment received immediately. (3) RM 75,000 per...
1. Suppose you have just won the first prize in a lottery. The lottery offers you...
1. Suppose you have just won the first prize in a lottery. The lottery offers you two possibilities for receiving your prize. The first possibility is to receive a payment of $16,000 at the end of the year, and then, for the next 10 years this payment will be repeated, but it will grow at a rate of 4%. The interest rate is 12% during the entire period. The second possibility is to receive $100,000 right now. Which of the...
Suzie just won the lottery! As her prize, she will receive $2500 a month for the...
Suzie just won the lottery! As her prize, she will receive $2500 a month for the next 10 years. The first payment will be paid today. At 6%, compounded monthly, what is her prize worth today?
The $45.0 million lottery payment that you have just won actually pays $3.0 million per year...
The $45.0 million lottery payment that you have just won actually pays $3.0 million per year for 15 years. The interest rate is 9%. a. If the first payment comes in 1 year, what is the present value of the winnings? (Do not round intermediate calculations. Enter your answer in dollars, not millions, rounded to 2 decimal places.)   Present value $ b. What is the present value if the first payment comes immediately? (Do not round intermediate calculations. Enter your...
F1). Sam Hill has just won the state lottery, paying $200,000 a year for the next...
F1). Sam Hill has just won the state lottery, paying $200,000 a year for the next 30 years. Sam will receive his first payment today. If the interest rate is 5%, what is the present value of his lottery winnings? (Enter a positive value and round to 2 decimals)
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT