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barxatty [35]
3 years ago
15

A lottery claims its grand prize is ​$15 ​million, payable over 5 years at ​$3000000 per year. If the first payment is made​ imm

ediately, what is the grand prize really​ worth? Use an interest rate of 8​%.
Business
1 answer:
xz_007 [3.2K]3 years ago
3 0

Answer:

$ 11, 978,133.75

Explanation:

The grand prize of 15,000,000 is worth the present value of the prize at an 8% interest. The prize is paid every year, meaning its an annuity case.

The present value of an annuity is calculated using the formula

PV = P × <u> 1 − (1+r)−n </u>

  r

Where

P $3,000,000

r is 8% 0r 0.08

n is 5

PV = $3,000,000 x <u>1-(1+0.08) - 5</u>

    0.08

PV =$3,000,000 x<u> 1 - 0. 6805831</u>

    0.08

PV = $ 3,000, 000  x 3.99271

PV = 11, 978,133.75

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