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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 $

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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

jeff jeffy answered 1 year ago
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