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anygoal [31]
3 years ago
11

A lottery claims its grand prize is $10 million, payable over 20 years at $500,000 per year. If the first payment is made immedi

ately, what is this grand prize really worth? Use an interest rate of 6%. Show work
Business
1 answer:
Ronch [10]3 years ago
7 0

Answer:

Answer is $6,079,058.25

Explanation:

This is a simple present value problem.

Present value of annuity shows the worth of annual payments which is present.

As per the given statement, grand prize of lottery is $10 million. This is payable over 20 years at $500,000 per year. The interest rate is 6%.

To find the real worth of the grand prize, each $5 million payment must be "brought back" to their current value at a 6% per year rate.

N = 20; PMT = 500,000; FV = 0 ; I = 6% ; Payments in BEGIN mode.

PV= Cash flow/ (1+rate of return) to the power n

PV will be addedc exponential power 20 times giving answer as $6,079,058.25

Hence, PV = $6,079,058.25

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