Question

Rita Gonzales won the $53 million lottery. She is to receive $2.2 million a year for the next 20 years plus an additional lump sum payment of $9 million after 20 years. The discount rate is 12 percent. What is the current value of her winnings

Answer 1

Answer:

PV= $17,365,776.86

Explanation:

Giving the following information:

Cf= 2,200,000

Number of years= 20

Discount rate= 12%

Additional lump sum= 9,000,000

First, we need to calculate the future value using the following formula:

FV= {A*[(1+i)^n-1]}/i

A= annual cash flow

FV= {2,200,000*[(1.12^20) - 1]} / 0.12 + 9,000,000

FV= $167,515,373.4

Now, the present value:

PV= FV/(1+i)^n

PV= 167,515,373.4/1.12^20

PV= $17,365,776.86