The multistate Powerball Lottery, worth $182 million, was won by a single individual who had purchased...

The multistate Powerball Lottery, worth $182 million, was won by a single individual who had purchased five tickets at $1 each. The winner was given two choices: Receive 26 payments of $7 million each, with the first payment to occur now and the rest to be sent at the end of each of the next 25 years; OR receive a single lump-sum payment today that would be equivalent to the 26 payments of $7 million each. If the lottery uses an interest rate of 4%/yr/yr, find the amount of the lump sum payment.

Expert Solution

Today the lumpsum payment to be received is $116,354,560

The explanation is as follows:

YEAR	CASHFLOW	PVF @ 4%	PRESENT VALUE
0	7,000,000	1.000	7000000
1	7,000,000	0.962	6730769.2
2	7,000,000	0.925	6471893.5
3	7,000,000	0.889	6222974.5
4	7,000,000	0.855	5983629.3
5	7,000,000	0.822	5753489.7
6	7,000,000	0.790	5532201.7
7	7,000,000	0.760	5319424.7
8	7,000,000	0.731	5114831.4
9	7,000,000	0.703	4918107.1
10	7,000,000	0.676	4728949.2
11	7,000,000	0.650	4547066.5
12	7,000,000	0.625	4372179.3
13	7,000,000	0.601	4204018.6
14	7,000,000	0.577	4042325.6
15	7,000,000	0.555	3886851.5
16	7,000,000	0.534	3737357.2
17	7,000,000	0.513	3593612.7
18	7,000,000	0.494	3455396.8
19	7,000,000	0.475	3322497
20	7,000,000	0.456	3194708.6
21	7,000,000	0.439	3071835.2
22	7,000,000	0.422	2953687.7
23	7,000,000	0.406	2840084.3
24	7,000,000	0.390	2730850.3
25	7,000,000	0.375	2625817.6
Present value of Cash inflows			116354560

Rahul Sunny answered 2 years ago

Who Wants to Be a Millionaire? You just won $1 million dollars in the lottery! They...

Who Wants to Be a Millionaire? You just won $1 million dollars in the lottery! They offer you two options for your winnings: a lump sum payment right now, or $100,000 a year over the next 10 years. Current 10-year interest rates are at 5%, and the current tax on lottery winnings is 40%. What is the amount you will receive today with the lump sum option? Which option would you select? How would you present your argument for your...

(a) You have won a lottery worth $1,000,000. The amount will be paid to you in...

(a) You have won a lottery worth $1,000,000. The amount will be paid to you in equal installments over 20 years. If the interest rate is 10% compounded annually, how much will you be paid at the end of each year? (b) You have just joined the investment banking firm of Mckenzie & Co. They have offered you two different salary arrangements. You can have $75,000 per year for the next two years, or you can have $55,000 per year...

Suppose you won the lottery and had two options: (1) receiving $0.1 million or (2) taking...

Suppose you won the lottery and had two options: (1) receiving $0.1 million or (2) taking a gamble in which, at the flip of a coin, you receive $0.2 million if a head comes up but receive zero if a tail comes up. What is the expected value of the gamble? Round your answer to two decimal places. Enter your answer in millions. For example, an answer of $550,000 should be entered as 0.55. million Would you take the sure...

Sondra and Jason, a wealthy married couple, won $96 million in a 2017 Powerball drawing. They...

Sondra and Jason, a wealthy married couple, won $96 million in a 2017 Powerball drawing. They decided to share some of this new wealth immediately with some of their friends and family. They paid $1,800,000 on a new home for Sondra’s parents, titling the home jointly in the parents’ names; bought a condominium on Captiva Island for Jason’s widowed mother for $950,000; gave $1 million to a local charity that provides homes and job training for homeless families; sent $150,000...

Recently, a lucky person won the lottery. The lottery winnings were reported to be $85.5 million....

Recently, a lucky person won the lottery. The lottery winnings were reported to be $85.5 million. In reality, the winner got a choice of $2.85 million per year for 30 years or $46 million today. a) Explain briefly why winning $2.85 million per year for 30 years is not equivalent to winning $85.5 million. You may use simple calculations (with assumptions such as an interest rate of 3% p.a.) to explain your answer. b) The evening news interviewed a group...

1. Suppose you won $2 million in a lottery and it is to be paid in...

1. Suppose you won $2 million in a lottery and it is to be paid in 25 equal annual installments starting today. An alternative to the installment plan is to receive a lump sum payment today. If the applicable discount rate was 7% per year, how large would the lump sum payment have to be? Round to the nearest cent. 2. If you invest $86 per month (starting next month) every month for 38 years, and you can earn 10%...

Suppose Mr. Ali, a manager in a financial firm, has just won a lottery of worth...

Suppose Mr. Ali, a manager in a financial firm, has just won a lottery of worth $ 3,000 and he has planned to retire thirty years from today. He expects that he may need $ 50,000 on the marriage of his daughter 20 years from today and $ 10,000 to exchange his old car with the new one 15 years from today. He determines that he needs $15,000 per year once he retires, with the first retirement funds withdrawn one...

Rita Gonzales won the $65 million lottery. She is to receive $3 million a year for...

Rita Gonzales won the $65 million lottery. She is to receive $3 million a year for the next 20 years plus an additional lump sum payment of $5 million after 20 years. The discount rate is 6 percent. What is the current value of her winnings? Use Appendix B and Appendix D for an approximate answer, but calculate your final answer using the formula and financial calculator methods.(Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Rita Gonzales won the $38 million lottery. She is to receive $1.1 million a year for...

Rita Gonzales won the $38 million lottery. She is to receive $1.1 million a year for the next 25 years plus an additional lump sum payment of $10.5 million after 25 years. The discount rate is 12 percent. What is the current value of her winnings?

Rita Gonzales won the $62 million lottery. She is to receive $1.9 million a year for...

Rita Gonzales won the $62 million lottery. She is to receive $1.9 million a year for the next 25 years plus an additional lump sum payment of $14.5 million after 25 years. The discount rate is 13 percent. What is the current value of her winnings? Use Appendix B and Appendix D for an approximate answer, but calculate your final answer using the formula and financial calculator methods.(Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Question