Answer:
You did not recieve 1 million.
Explanation:
Giving the following information:
With the first payment to be received immediately, you will receive $100,000 each year for the next nine years.
1) Interest rate= 4%
First, we need to calculate the final value and then the present value using the following formula.
FV= {A*[(1+i)^n-1]}/i + {[A*(1+i)^n]-A}
Because it is at the beginning of each period, we need to add an extra period of interest ([A*(1+i)^n]-A)
FV= {100,000*[(1.04^10)-1]}/0.04 + {[100,000*(1.04^10)]-100,000}
FV= 1,200,610.71 + 48,024.43= 1,248,635.14
Now, we can calculate the present value:
PV= FV/ (1+i)^n= 1,248,635.14/ 1.04^10= $843,533.16
B) i= 0.06
FV= {100,000*[(1.06^10)-1]}/0.06 + {[100,000*(1.06^10)]-100,000}
FV= 1,397,164.26
PV= 1,397,164.26 / 1.06^10= $780,169.23
