Question

Paulo has won the lottery. He is offered a series of payments of $10,000 per year for 10 years. What is the present value of these payments at an interest/discount rate of 6%

Answer 1

The present value of the payments is $73,600.87.

Present value of a cash flow is the value of the cash flow today. This is determined by adding the discounted cash flows of the cash flows together.  

Discounted year 1 cash flow: 10,000 / (1.06) = 9,433.96

Discounted year 2 cash flow: 10,000 / (1.06)^2 = 8,899.96

Discounted year 3 cash flow: 10,000 / (1.06)^3 = 8,296.19

Discounted year 4 cash flow: 10,000 / (1.06)^4 = 7,920.94

Discounted year 5 cash flow: 10,000 / (1.06)^5 = 7,472.58

Discounted year 6 cash flow: 10,000 / (1.06)^6 = 7,049.61

Discounted year 7 cash flow: 10,000 / (1.06)^7 = 6,650.57

Discounted year 8 cash flow: 10,000 / (1.06)^8= 6,274.12

Discounted year 9 cash flow: 10,000 / (1.06)^9 = 5,918.98

Discounted year 10 cash flow: 10,000 / (1.06)^10 = 5,583.95

The sum of the discounted cash flows = $73,600.87

A similar question was solved here: brainly.com/question/9641711?referrer=searchResults