Congratulations, you have just won $10,000,000 in the Power Ball Lottery. However, as is often the...
Congratulations, you have just won $10,000,000 in the Power Ball Lottery. However, as is often the custom with lotteries, you have the following choices:
Alternative A: taking the entire ten million dollars in one lump sum today
Alternative B: receiving $500,000 at the end of the year for each of the next 20 years.
Please send your computed answers base on both alternatives to me along with your reasoning why you choose either alternative A or alternative B.
If the annual interest rate is 6%, what is the present value (today's amount) that you won if you choose to receive $500,000 at the end of the year for the next 20 years? (Ignore taxes.)
Homework Answers
rate positively ..
| we have to compute the present value of both the alternative | |||||
| Present value of alternative A = | $ 10,000,000 | ||||
| Present value of alternative B= | |||||
| we have to use finanical calcualtor to solve this | |||||
| put in calculator | |||||
| FV | 0 | ||||
| PMT | -500000 | ||||
| I | 6% | ||||
| N | 20 | ||||
| Compute PV | $5,734,960.61 | ||||
| Present value = | $5,734,960.61 | ||||
| We can see that present value of Alternative A is higher compared to B. | |||||
| Therefore alternative A should be selected |
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