Question

1. Suppose that you will receive annual payments of $20,000 for a period of 10 years. The first payment will be made 5 years from now. If the interest rate is 5%, what is the present value of this stream of payments? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

2. The $47.5 million lottery payment that you have just won actually pays $1.9 million per year for 25 years. The interest rate is 10%.

a. If the first payment comes in 1 year, what is the present value of the winnings? (Do not round intermediate calculations. Enter your answer in dollars, not millions, rounded to 2 decimal places.)

b. What is the present value if the first payment comes immediately? (Do not round intermediate calculations. Enter your answer in dollars, not millions, rounded to 2 decimal places.)

Answer 1

1

PVOrdinary Annuity = C*[(1-(1+i/100)^(-n))/(i/100)]

C = Cash flow per period

i = interest rate

n = number of payments

PV= 20000*((1-(1+ 5/100)^-10)/(5/100))

PV = 154434.7

Future value = present value*(1+ rate)^time

154434.7 = Present value*(1+0.05)^4

Present value = 127053.81

Please ask remaining parts seperately, questions are unrelated