Eddie wants to cash in his winning lottery ticket

Accounting Nov 02, 2020

Eddie wants to cash in his winning lottery ticket. He can either receive ten, $100,000 semiannual payments starting today, or he can receive a lump-sum payment now based on a 6% annual interest rate. What is the equivalent lump-sum payment? when I plug in the interest rate in the calculator should I put 3% because the payments say they are semi annual? can you also show how reach the final answer using the calculator method (pv= n=)

Expert Solution

i = 6%/2 = 3%; n=10
PVAD of $1: n = 10; i = 3% will be 8.78611
Equivalent lump-sum payment = PVAD = [$100,000 * 8.78611] = $878,611

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