Question

Your friend just won the lottery. He has a choice of receiving $50,000 a year for the next 20 years or a lump sum today. The lottery uses a 15% discount rate. What would be the lump sum your friend would receive?

Answer 1

To find the lump sum your friend would receive, we can use the concept of present value. The formula for present value is PV = FV / (1 + r)^t. Plugging in the values of $50,000 per year for 20 years and a discount rate of 15%, your friend would receive a lump sum of approximately $402,115.31.

Step-by-step explanation:

To find the lump sum your friend would receive, we can use the concept of present value. The formula for present value is:

PV = FV / (1 + r)^t

Where PV is the present value, FV is the future value, r is the discount rate, and t is the number of periods. In this case, the future value is $50,000 per year for 20 years, the discount rate is 15%, and the number of periods is 20. Plugging these values into the formula, we get:

PV = 50000 / (1 + 0.15)^20 = $402,115.31

So, your friend would receive a lump sum of approximately $402,115.31.

Answer 2

The lump sum would be $1,000,000.

Step-by-step explanation:

`500000 * 20 = 1000000`

It would be $1,000,000 without the discount rate, but I don't know how to subtract a discount rate from a number. Sorry.