Question

The $40 million lottery payment that you have just won actually pays $2 million per year for 20 years. The interest rate is 8%. a. If the first payment comes in 1 year, what is the present value of the winnings

Answer 1

$19.64 million

Step-by-step explanation:

The computation of the present value of the winning is shown below:

The Present value of the winning is

= $2 million × (1 ÷ 1.08 [1 ÷ (0.08 × (1.08)^20)})

= $19.64 million

hence, the present value of the winning is $19.64 million

The same is to be considered

We considered all the items except lottery payment