You just won the 1 million dollar lottery! However the state will be paying it out...

You just won the 1 million dollar lottery! However the state will be paying it out to you in 20 annual $50,000 payments. If the inflation rate averages 4% over that time period how much would be the present value if you could receive an equivalent amount up front in a lump sum.

Solutions

Expert Solution

Present value= A(PVAF i%, n)

Where A= annual amount (given as $50,000), i= inflation rate (given as 4%) and n= period (number of years given as 20)

Present value= $50,000*(PVAF 4%,20)

= $50,000* 13.590326 = $679,516.32

jeff jeffy answered 2 years ago

Next > < Previous

Related Solutions

You just won your state lottery and will be receiving a check for $1 million. You...

You just won your state lottery and will be receiving a check for $1 million. You have always wanted to start your own food truck business A new food truck with kitchen and other related equipment costs about $100,000. Other fixed costs including salaries, gas for the truck, licensing fees are estimated to be about $50,000 per year. You decided to offer traditional Mediterranean cuisine. Variable costs include food and beverages estimated at $6 per platter (meat, rice, vegetable and...

2. You just won a Million Dollar lottery and you can choose one of the following...

2. You just won a Million Dollar lottery and you can choose one of the following two options to claim your winning. If you choose Option A, you will receive $40,000 every year for 25 years (40,000 x 25 = $1,000,000 hence the name), with the first payment to occur one year from today. But you may also choose Option B, in which case you will receive a single payment of $600,000 today. The applicable tax rate for the annual...

1. You have just won the prize in the State lottery. A recent innovation is to...

1. You have just won the prize in the State lottery. A recent innovation is to offer prize winners a choice of payoffs. You must choose one of the following prizes: a. $1,000,000 paid immediately b. $600,000 paid exactly one year from today, and another $600,000 paid exactly 3 years from today c. $70,000 payment at the end of each year forever (first payment occurs exactly 1 year from today) d. An immediate payment of $600,000, then beginning exactly 5...

Manuel just won the lottery and the prize was $ 1 million. You have the option...

Manuel just won the lottery and the prize was $ 1 million. You have the option of receiving a lump sum of $ 312,950 or $ 50,000 per year for the next 20 years. If Miguel can invest the single amount at 9% or invest the annual payments at 7%; Which one should I choose? a. one-time amount of 312,950 b. b. annual payments of 50,000

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...

You have just won a lottery of $1 million and you can chooseamong the following...

You have just won a lottery of $1 million and you can choose among the following three payout options. The effective annual interest rate (EAR) is 5%. Option A: $100,000 every two years, starting 2 years from now and ending 20 years from now. Option B: $100,000 a year at the end of the next 10 years, with the first payment one year from today. Option C: $500,000 right now and $500,000 exactly 20 years from now. Please calculate the...

1. You just won 100 million playing the lottery yesterday and you deposit 50 million in...

1. You just won 100 million playing the lottery yesterday and you deposit 50 million in the local bank. Would you spending habits and the way you think about and select goods and service change compared to the way it was before you won lottery? what types of goods would you buy and in what quantities? why? Please explain it by some economic concept as much detail as possible.

Juan just won $2.5 million in the state lottery. He is given the option of receiving...

Juan just won $2.5 million in the state lottery. He is given the option of receiving a total of $1.3 million now, or he can elect to be paid $100,000 at the end of each of the next 25 years. If Juan can earn 5% annually on his investments, from a strict economic point of view, which option should he take? Explain why.

Jackie Chan has just won the state lottery, paying $50,000 a year for 20 years. He...

Jackie Chan has just won the state lottery, paying $50,000 a year for 20 years. He is to receive his first payment a year from now. The state advertises this as the Million Dollar Lottery because he will receive a total of $1,000,000 over the next 20 years. If the interest rate is 8 percent, what is the true value of the lottery?

You just won $1,000,000 in the lottery. This lottery will pay you $1 a year for...

You just won $1,000,000 in the lottery. This lottery will pay you $1 a year for a million years. Using a martket discount rate of 5% compound annually, what is the current value of this prize? $20 $67 $24.67 $16.66 $12

Subjects