You just won a lottery that promises to pay you $1 million exactly 10 years from today

Finance Sep 19, 2020

You just won a lottery that promises to pay you $1 million exactly 10 years from today. Because the $1 million payment is guaranteed by the state in which you live, opportunities exist to sell the claim today for an immediate lump-sum cash payment. What is the least you will sell your claim for if you could earn 8.61 % on similar-risk investments during the 10-year period?

Expert Solution

Future value= $1000000

No. of period= 10

Interest rate= 8.61%

Present value= Future value/ (1+ interest rate)^ no. of period

= 1000000/ (1+ 8.61%)^ 10

= $ 437,826.32 or $437,826

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