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In: Economics

Assume that you just hit the $30 million Jackpot in the New York State Lottery, which...

Assume that you just hit the $30 million Jackpot in the New York State Lottery, which promises you a payment of$1 million for the next thirty years. You are clearly excited, but have you really won $30 million? Assume that the bank interest rate is 7.5% per annum. What is the Present Value of the lottery?

Solutions

Expert Solution

In this case you have'ne really won 30$ million. To calculate the present value, we need to calculate the present value for each year.

PV for the first year =

PV for the second year =

Repeating this 30 times, we get the following values

Thus, the present value of the lottery is $11,810,386.27

You can also get an approximate value of this by looking at the Annuity table of 1$ for 30 years at 7.5% and muliplying it by annual payment.

Annuity PV rate for 30 years at 7.5 % = 11.8104

Annual payments = $1,000,000

Present Worth = 1,000,000 * 11.8104 = 11,810,400 (Approx)

Rahul Sunny answered 1 year ago
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