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emmainna [20.7K]
3 years ago
6

You just won a state lottery! The lottery offers you a choice: you may choose a lump sum today, or $89 million in 26 equal annua

l installments at the end of each year. Assume the funds can be invested (yield) at an annual rate of 7.65%. What is the lump sum that would equal the present value of the annual installments
Business
1 answer:
deff fn [24]3 years ago
7 0

Answer:

the lump sum that would equal the present value of the annual installments is $38,163,612

Explanation:

The computation of the lumspum amount is as follows;

= Cash flow × (1 - (1 + rate of interest)^-number of years) ÷ rate of interest)

= $89 million × (1 - (1 + 0.0765)^-26) ÷ 0.0765)

= $38,163,612

Hence, the lump sum that would equal the present value of the annual installments is $38,163,612

Therefore the above is calculated by applying the given formula

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