Homework Help Question & Answers

Your friend just won the lottery. He has a choice of receiving $122,788 a year for...

Your friend just won the lottery. He has a choice of receiving $122,788 a year for the next 18 years or a lump sum today. The lottery uses a 8% discount rate. What would be the lump sum your friend would receive?

Your friend just won the lottery. He has a choice of receiving $122,788 a year for the next 18 years or a lump sum today. The lottery uses a 8% discount rate. What would be the lump sum your friend would receive?
0 0
Next > < Previous
ReportAnswer #1

Annual payment = $122,788
Number of payments = 18
Discount rate = 8%

Present value = $122,788/1.08 + $122,788/1.08^2 + .... + $122,788/1.08^18
Present value = $122,788 * (1 - (1/1.08)^18) / 0.08
Present value = $122,788 * 9.371887
Present value = $1,150,755.26

So, he will receive a lump sum payment of $1,150,755.26

Know the answer?
Add Answer of:
Your friend just won the lottery. He has a choice of receiving $122,788 a year for...
Your Answer: Your Name: What's your source?
Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions
  • Your friend just won the lottery. He has a choice of receiving $50,000 a year for...

    Your friend just won the lottery. He has a choice of receiving $50,000 a year for the next 20 years or a lump sum today. The lottery uses a 15% discount rate. What would be the lump sum your friend would receive? I know the answer is 312,966.57, however, I don't know why my calculator cannot get this number.

  • 7 years ago, you put $166,308 into an interest-earning account. Today it is worth $255,924. What...

    7 years ago, you put $166,308 into an interest-earning account. Today it is worth $255,924. What is the effective annual interest earned on the account? Round your answer to the nearest tenth of a percent. For example, if you get 15.1 %, write 0.151. Your friend just won the lottery. He has a choice of receiving $122,788 a year for the next 18 years or a lump sum today. The lottery uses a 8% discount rate. What would be the...

  • 14.( )Joe Brady just won a $450,000 lottery in Pennsylvania. Instead of receiving a lump sum,...

    14.( )Joe Brady just won a $450,000 lottery in Pennsylvania. Instead of receiving a lump sum, he found that he would receive $22,500 annually (end of year) for 20 years. Joe is 75 years old and wants his money now. He has been offered $140, 827 to sell his ticket. What rate of return is the buyer expecting to make if Joe accepts the offer? a. b. C. d. less than 1% 15% 18% 12%

  • Michael has just won the lottery! He has an option of taking a lump sum of...

    Michael has just won the lottery! He has an option of taking a lump sum of $17 million or can be paid $900,000 per year for 30 years at the end of the year. The discount rate is 3%. Which option is better?

  • Mary Alice just won the lottery and is trying to decide between the options of receiving...

    Mary Alice just won the lottery and is trying to decide between the options of receiving the annual cash flow payment option of $300,000 per year for 25 years beginning today, or receiving one lump-sum amount today. Mary Alice can earn 5% investing this money. At what lump-sum payment amount would she be indifferent between the two alternatives? (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s)...

  • Mary Alice just won the lottery and is trying to decide between the options of receiving...

    Mary Alice just won the lottery and is trying to decide between the options of receiving the annual cash flow payment option of $260,000 per year for 30 years beginning today, or receiving one lump-sum amount today. Mary Alice can earn 5% investing this money. At what lump-sum payment amount would she be indifferent between the two alternatives? (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)  (Use appropriate factor(s) from...

  • 1. Lory won a lottery. She will have a choice of receiving $25,000 at the end...

    1. Lory won a lottery. She will have a choice of receiving $25,000 at the end of each year for the next 30 years, or a lump sum today. If she can earn a return of 10 percent on an investment she makes, what is the minimum amount she should be willing to accept today as a lump-sum payment? (Round to the nearest hundred dollars.) A) $750,000 B) $196,780 C) $212,400 D) $235,700 2. The U.S. Treasury has issued 10-year...

  • Your brother just won the Power Ball lottery

    Your brother just won the Power Ball lottery. He has the choice of $10,000,000 today or 30-year annuity of $500,000, with the first payment coming today. What rate of return is built into the annuity?

  • QUESTION 16 Your cousin just won the lottery. He will receive $15,000 per year for twenty-five...

    QUESTION 16 Your cousin just won the lottery. He will receive $15,000 per year for twenty-five years. What is the present value of these payments assuming a discount rate of 9.247 Assume that payments are at the end of each year.

  • Rita won $60 million lottery

    Rita won $60 million lottery. She is to receive $1 million a year for the next 50 years plus an additional lump sum of $10 million after the 50th year. The discount rate is 10%. What is the present value of her winnings?

Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.