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21 July, 10:23

You win the lottery and must decide how to take the payout. Use a 10 % discount rate. What is the present value of $ 12 comma 000 a year received at the end of each of the next five years?

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  1. 21 July, 12:49
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    PV = $45,489.44

    Explanation:

    Giving the following information:

    Discount rate = 10%

    Cash flow = $12,000

    Number of years = 5

    First, we need to calculate future value. We will use the following formula:

    FV = {A*[ (1+i) ^n-1]}/i

    A = annual cash flow

    FV = {12,000*[ (1.1^5) - 1]} / 0.1

    FV = $73,261.2

    Now, the present value:

    PV = FV / (1+i) ^n

    PV = 73,261.2/1.1^5

    PV = $45,489.44
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