Question
In: Finance
Kimberly Young, a lottery winner, will receive the following payments over the next seven years. She...
Kimberly Young, a lottery winner, will receive the following payments over the next seven years. She has been approached by an investor who will pay Kimberly a lump sum today for the rights to those future cash flows. If she can invest her cash flows in a fund that will earn 11.0 percent annually, how much should Kimberly require the investor to pay for the cash flows? (Round answer to 2 decimal places, e.g. 15.25. Do not round factor values.)
1 2 3 4 5 6 7 Year $188,000 $238,000 $263,000 $288,000 $338,000 $388,000 $538,000 Present value of investment $
Solutions
Expert Solution
| Year | Cashflow |
PV factor 1/(1+11%)^time |
Cashflow * PV factor |
| 1 | $ 188,000 | 0.9009 | $ 169,369.37 |
| 2 | $ 238,000 | 0.8116 | $ 193,166.14 |
| 3 | $ 263,000 | 0.7312 | $ 192,303.33 |
| 4 | $ 288,000 | 0.6587 | $ 189,714.52 |
| 5 | $ 338,000 | 0.5935 | $ 200,586.55 |
| 6 | $ 388,000 | 0.5346 | $ 207,440.64 |
| 7 | $ 538,000 | 0.4817 | $ 259,132.23 |
| Total PV | $ 1,411,712.78 | ||
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