Question

You have just won the Strayer Lottery jackpot of $11,000,000. You will be paid in 26 equal annual installments beginning immediately. If you had the money now, you could invest it in an account with a quoted annual interest rate of 9% with monthly interest compounding. What is the present value of the payments you will receive?

Answer 1

Total amount won in a lottery, P = $11,000,000
Yearly payments, C = 11,000,000/26 = $423,076.92
The payments will be done at start of every year.

With monthly compounding;

PV = C{(1-R/12)^-25*12)/R/12)+(1+R/2), where R = Interest rate = 9% = 0.09

Therefore,
PV = 423076.92*{(1-(1+0.09/12)^-12*25)/0.09/12}+(1+0.09/12) = $51,310,701.95

Therefore, the present value will be more if the amount is invested.