Question

Shelley wants to cash in her winning lottery ticket. She can either receive fourteen, $188,000 semiannual payments starting today, or she can receive a single-amount payment today based on a 6% annual interest rate. What is the single-amount payment she can receive today

Answer 1

Answer:

$2,123,661.75

Explanation:

We are to find the present value of the payments

but first we are to determine the future value of the payments

The formula for calculating future value = A (B / r)

B = [(1 + r)^n] - 1  

R = interest rate = 6% / 2 = 3%

N = number of years = 14

(1.03^14 - 1 ) / 0.03 = 17.086324

$188,000 x 17.086324 = $3,212,228.94

Present value = future value(1 + r ) ^-N

$3,212,228.94(1.03)^-14 = $2,123,661.75