Ask Question
18 June, 09:36

A lottery claims its grand prize is $10 million, payable over 20 years at $500,000 per year. If the first payment is made immediately, what is this grand prize really worth? Use an interest rate of 6%. Show work

+5
Answers (1)
  1. 18 June, 13:03
    0
    Answer is $6,079,058.25

    Explanation:

    This is a simple present value problem.

    Present value of annuity shows the worth of annual payments which is present.

    As per the given statement, grand prize of lottery is $10 million. This is payable over 20 years at $500,000 per year. The interest rate is 6%.

    To find the real worth of the grand prize, each $5 million payment must be "brought back" to their current value at a 6% per year rate.

    N = 20; PMT = 500,000; FV = 0; I = 6%; Payments in BEGIN mode.

    PV = Cash flow / (1+rate of return) to the power n

    PV will be addedc exponential power 20 times giving answer as $6,079,058.25

    Hence, PV = $6,079,058.25
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “A lottery claims its grand prize is $10 million, payable over 20 years at $500,000 per year. If the first payment is made immediately, what ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers