Question

In: Finance

You just won the lottery and will receive $14,000 at the end of each of the...

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)

Solutions

Expert Solution

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

Related Solutions

Alysha has just won a lottery. She will receive a payment of $8,000 at the end...
Alysha has just won a lottery. She will receive a payment of $8,000 at the end of each year for 9 years. As an alternative, she can choose an immediate payment of $55,000. A. Which alternative should she pick if the interest rate is 4 percent: make a payment at the end of each year or an immediate payment? (choose) B. What would the interest rate have to be for Alysha to be indifferent about the two alternatives? (Round answer...
Alysha has just won a lottery. She will receive a payment of$8,000 at the end...
Alysha has just won a lottery. She will receive a payment of $8,000 at the end of each year for 9 years. As an alternative, she can choose an immediate payment of $55,000.A. Which alternative should she pick if the interest rate is 4 percent: make a payment at the end of each year or an immediate payment? (choose)B. What would the interest rate have to be for Alysha to be indifferent about the two alternatives? (Round answer to 4...
You have just won the lottery and will receive $500,000 in one year. You will receive...
You have just won the lottery and will receive $500,000 in one year. You will receive payments for 25 years, and the payments will increase 4 percent per year. If the appropriate discount rate is 11 percent, what is the present value of your winnings? 5,511,586 $29,258,112 $36,804 $29,258,112 $5,741,235
You have just won the lottery and will receive $1,500,000 in one year. You will receive...
You have just won the lottery and will receive $1,500,000 in one year. You will receive payments for 30 years, and the payments will increase by 2.5 percent per year. If the appropriate discount rate is 7 percent, what is the present value of your winnings?
You have just won the lottery and will receive $610,000 in one year. You will receive...
You have just won the lottery and will receive $610,000 in one year. You will receive payments for 19 years, which will increase 5 percent per year. The appropriate discount rate is 12 percent. Required: What is the present value of your winnings?
You have just won the Kryshak lottery and you are given the following options to receive...
You have just won the Kryshak lottery and you are given the following options to receive your winnings: 1. A lifetime annuity of $480,000 per year, with the first payment occurring one year from today. Your life expectancy is 40 years. (You will receive 40 payments) 2. A payment of $461,050 per year for 30 years (30 payments) with the first payment made immediately. 3. $7,945,000 five years from now. If your opportunity cost is 9%, which should you pick...
You have just won the lottery and will receive a lump sum payment of $22.53 million...
You have just won the lottery and will receive a lump sum payment of $22.53 million after taxes. Instead of immediately spending your money, you plan to deposit all of the money into an account that will earn 4.81 percent. If you make equal annual withdrawals for the next 25 years, how much can you withdraw each year starting exactly one year from now? Fancy Cat Products has a project that will cost $250,100 today and will generate monthly cash...
You have just won $1,000,000 in the Tennessee Lottery. You will receive payments of $40,000 per...
You have just won $1,000,000 in the Tennessee Lottery. You will receive payments of $40,000 per year (at the end of each year) for the next 25 years. If the discount rate is 8 percent, what are your winnings worth today? How would I input this information using a financial calculator?
Congratulations! You have just won $1,000,000 in the New York Lottery. You will receive payments of...
Congratulations! You have just won $1,000,000 in the New York Lottery. You will receive payments of $40,000 per year (at the end of each year) for the next 25 years. If the discount rate is 14 percent, what are your winnings worth today?
you just won a lottery entitling you to receive, starting today, a series of 21 quarterly...
you just won a lottery entitling you to receive, starting today, a series of 21 quarterly payments of 25,000 each, followed, one year after this series of payments end, by a second series of annual payments of $30,000 each forever! (This $30,000 payment is to be recieved exactly one year after the last $25,000 payment is received) if the appropriate discount rate is =10% compounded continuously, what is the present value of all these future lottery payments? please show how...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT