Question

You have won the lottery. You will receive $2,420,000 today, and then receive 40 payments of $1,210,000 These payments will start one year from now and will be paid every six months. A representative from Greenleaf Investments has offered to purchase all the payments from you for $25 million. The appropriate discount rate is an APR of 9 percent compounded daily. Assume there are 12 months in a year, each with 30 days.
What is the present value of the cash flows from your lottery winnings?

Answer 1

Answer:

The present value of the cash flows from your lottery winnings is $11,132,000.

Explanation:

Present Value of Lottery = $2,420,000

Annuity periods = 40

Present Value of annuity = P ( ( 1 - ( 1 + r / m )^-mt ) / r )

Present Value of annuity = 1,210,000 ( ( 1 - ( 1 + 0.09/2 )^-40 ) / 0.09 )

Present Value of annuity = 1,210,000  x 9.20

Present value of cash flow = $11,132,000

The present value of the cash flows from your lottery winnings is $11,132,000.