In: Finance
You just won the lottery and will receive $14,000 at the end of each of the next 10 years. Your friend offers to give you a flat $100,000 for the 10 years' worth of income flows right now. If you expect a return of 7% on any surefire investment, how much do you think these lottery winnings are worth to you today? (FORMAT: XX,XXX.XX DO NOT INCLUDE A DOLLAR SIGN)
PRESENT VALUE OF LOTTERY = 98,330.14
P = | Periodic Payments |
r = | rate of interest |
n = | no of periods |
PRESENT VALUE OF LOTTERY = | P [ 1 - ( 1 + r )^-n ] |
r | |
PRESENT VALUE OF LOTTERY = | 14000* ( 1 - ((1 / (1 + 7%)^10))) |
7% | |
PRESENT VALUE OF LOTTERY = | 6883.10991 |
0.07 | |
PRESENT VALUE OF LOTTERY = | 98330.14 |
PRESENT VALUE OF AMOUNT FROM FRIEND = 702,358.15 |
P = | Periodic Payments |
r = | rate of interest |
n = | no of periods |
PRESENT VALUE OF AMOUNT FROM FRIEND = | P [ 1 - ( 1 + r )^-n ] |
r | |
PRESENT VALUE OF AMOUNT FROM FRIEND = | 100000* ( 1 - ((1 / (1 + 7%)^10))) |
7% | |
PRESENT VALUE OF AMOUNT FROM FRIEND = | 49165.07079 |
0.07 | |
PRESENT VALUE OF AMOUNT FROM FRIEND = | 702358.15 |