Question

Rita Gonzales won the $62 million lottery. She is to receive $2.8 million a year for the next 20 years plus an additional lump sum payment of $6 million after 20 years. The discount rate is 14 percent. What is the current value of her winnings?

Answer 1

Total current value is $18,982,680

Step-by-step explanation:

Given data:

Price of lottery is $62 million

discount rate is 14%

received amount in 20 year is $2.8 million

lump sum payment after 20 year is $6 million

PVAF value for 20 year and 14 % is 6.6231 [ from PVAF table ]

present value of $2.8 million for 20 year = 2800000 * 6.6231 = $18,544,680

Present value of $6 million at end of 20 year is = 6 000000 * PVF (20 year , 14%)

from table PVF value for 20 year and 14% is 0.073

present value = 6000000 * 0.073 = 438000

total current value = 18,544,680 + 438000 = $18,982,680