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Homework answers / question archive / 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
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?
| 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 |
