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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