Question

On January 1, you win $50,000,000 in the state lottery. The $50,000,000 prize will be paid in equal installments of $6,250,000 over eight years. The payments will be made on December 31 of each year, beginning on December 31 of this year. If the current interest rate is 12%, determine the present value of your winnings. Use the present value

Answer 1

Answer:

The present value of our winnings will be 31,047,748

Explanation:

We know that we will be paid in equal payments during 8 years which means that there will be no lump sum payment in the end which means the future value of the lottery is 0. We know the payments are 6,250,000, the interest rate is 12% and the number of years are 8. We can input this information in a financial calculator to find the present value of the winnings.

FV=0

PMT= 6,250,000

I=12

N=8

Compute PV= 31,047,748