Question

You just won the TVM Lottery. You will receive $1 million today plus another 10 annual payments that increase by $450,000 per year. Thus, in one year you receive $1.45 million. In two years, you get $1.7 million, and so on.

If the appropriate interest rate is 8%, what is the present value of your winnings?

Answer 1

21,624,467.720

Step-by-step explanation:

Answer 2

$22,419,192.19

Step-by-step explanation:

i used an excel spreadsheet to calculate the future payments and their present value. If the payments increase by $450,000 each year, the second payment will equal $1.9 million, not $1.7 million.

year payment

0 $1,000,000

1 $1,450,000

2 $1,900,000

3 $2,350,000

4 $2,800,000

5 $3,250,000

6 $3,700,000

7 $4,150,000

8 $4,600,000

9 $5,050,000

10 $5,500,000

present value = $22,419,192.19