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You are planning to buy a lottery ticket for the $5,000,000 jackpot. If you have (Option...

You are planning to buy a lottery ticket for the $5,000,000 jackpot. If you have (Option A). the cash option of receiving $5,000,000 today or you can opt to choose (Option B). the 20 payments of $400,000. Your investment account earns 6% interest compounded annually.

What is the future value of OPTION A? (Please use two decimals).

Solutions

Expert Solution

We use the formula:  
A=P(1+r/100)^n
where   
A=future value
P=present value  
r=rate of interest
n=time period.

A=5,000,000*(1.06)^20

=5,000,000*3.20713547

=$16,035,677.36(Approx)


jeff jeffy answered 1 year ago
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