Smith has won his state lottery. He will receive a total of $2,000,000 in twenty payments...

Smith has won his state lottery. He will receive a total of $2,000,000 in twenty payments of $100,000 each. He will receive the first payment now, and subsequent payments at one-year intervals. What is the present value of Smith's winnings, at an annual interest rate of 10%?

Solutions

Expert Solution

Present value of annuity due=(1+rate)*Annuity[1-(1+interest rate)^-time period]/rate

=1.1*100,000[1-(1.1)^-20]/0.1

=100,000*9.36492009

which is equal to

=$936492.01(Approx)

jeff jeffy answered 2 years ago

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