Question

Michael won the Powerball jackpot of 57 million dollars. He has two options to collect the cash: (a) 30-year annuities (first payment one year from today) which future value equates the jackpot amount given that the prevailing interest rate is 8% per year; (b) a single payment now, corresponding to the present value of those 30-year annuities. Michael has big plans, hence he prefers option (b). Assuming that there are no taxes, how much money will he be able to collect now

Answer 1

$5,664,627.53

Step-by-step explanation:

future value of the annuity = $57 million

interest rate = 8%

number of periods = 30

FV annuity factor, 8%, 30 periods = 113.283

annual payment = future value / FV annuity factor= $57,000,000 / 113.283 = $503,164.64

the present value of an annuity = annual payments x PV annuity factor

PV annuity factor, 30 periods, 8% = 11.258

present value of the annuity = $503,164.64 x 11.258 = $5,664,627.53