You have just won a two-part lottery! The first part will pay you $50,000 at the end of each of the next 20 years. The

Question

You have just won a two-part lottery! The first part will pay you $50,000 at the end of each of the next 20 years. The second part will pay you $1,000 at the end of each month over the same 20 year period. Assuming a discount rate of 11%, what is the present value of your winnings?

Help In Homework · Accepted Answer

PVOrdinary Annuity = C*[(1-(1+i/100)^(-n))/(i/100)] C = Cash flow per period i = interest rate n = number of payments PV= 50000*((1-(1+ 11/100)^-20)/(11/100)) PV = 398166.41 Using Calculator: press buttons "2ND"+"FV" then assign PMT =50000 I/Y =11 N =20 FV = 0 CPT PV Using Excel =PV(rate,nper,pmt,FV,type) =PV(11/(100),20,,PV,) PVOrdinary Annuity = C*[(1-(1+i/(f*100))^(-n*f))/(i/(f*100))] C = Cash flow per period i = interest rate n = number of payments I f = frequency of payment PV= 1000*((1-(1+ 11/1200)^(-20*12))/(11/1200)) PV = 96881.54 Using Calculator: press buttons "2ND"+"FV" then assign PMT =1000 I/Y =11/12 N =20*12 FV = 0 CPT PV Using Excel =PV(rate,nper,pmt,FV,type) =PV(11/(12*100),12*20,,PV,) Total =96881.54+398166.41 = 495047.95

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You have just won a two-part lottery! The first part will pay you $50,000 at the end of each of the next 20 years

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