Question

On his way home from work, Bill Harris was listening to the radio, which reminded him of the large Lotto Jackpot that night. So, Bill bought a ticket and won the jackpot of $50 million. Bill will be paid in 20 annual installments of $2.5 million. If Bill had selected the "cash value option", and the prevailing interest rate was 6%, his lump-sum payment would be: (Hint, present value of $2.5 million over 20 periods, using a 6% rate)

Answer 1

Ans. His payment would be $28,674,803.05

Step-by-step explanation:

Hi, we just need to bring all the annual payments to present value, discounted at a 6% rate, for 20 years. The equation and the present value as follows.

`Present Value=(A((1+r)^(n)-1) )/(r(1+r)^(n) )`

`Present Value=(2500000((1+0.06)^(20)-1) )/(0.06(1+0.06)^(20) ) =28674803.05`

Best of luck.