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22 December, 17:09

Hailey wants to cash in her winning lottery ticket. She can either receive eight $200,000 semiannual payments starting today, based on a 6% annual interest rate, or she can receive a single-amount payment today. What is the single-amount payment she can receive today that would be equivalent to the eight-payment option except that she would not have to wait for years to collect her prize money? (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor (s) from the tables provided.)

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  1. 22 December, 17:39
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    Single Amount She can received today is $1,263,055

    Explanation:

    The Simple Annuity Formula

    S=P (1+i) ^n

    Where

    Future Value S=$200,000*8=$1,600,000

    Present Value P=?

    Semi Annual Interest rate i=6%/2=3%

    Number of periods=8

    By putting above value in our formula we get

    S=P (1+i) ^n

    $1,600,000=P (1+.03) ^8

    P=$1,600,000/1.267

    P=$1,263,055
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