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Citrus2011 [14]
4 years ago
13

You win a scratch off lottery ticket that promises to pay an initial payment of 10,000 next year and grow at a rate of 2% foreve

r. If the discount rate is 5%, what is the present value of the lottery ticket?
Business
1 answer:
Jlenok [28]4 years ago
7 0

Answer:

PW=\frac{10,000}{0.05-0.02}\\ PW=\$333,333.333

Present value of lottery= $333,333.333

Explanation:

Given Data:

Initial Payment=$10,000

Rate at which payment grow=2%=0.02

Discount Rate=5%=0.05

Required:

Present value of lottery=?

Solution:

PW=\frac{Initial\ Payment}{r-g}

where:

r is the discount rate

g is the growth rate

PW=\frac{10,000}{0.05-0.02}\\ PW=\$333,333.333

Present value of lottery= $333,333.333

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