You have just won the Strayer Lottery jackpot of $11,000,000. You will be paid in 26 equal annual installments beginning immediately. If you had the money now, you could invest it in an account with a quoted annual interest rate of 9% with monthly interest compounding. What is the present value of the payments you will receive?

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Business

Alvin Brooks

24 July, 16:15

You have just won the Strayer Lottery jackpot of $11,000,000. You will be paid in 26 equal annual installments beginning immediately. If you had the money now, you could invest it in an account with a quoted annual interest rate of 9% with monthly interest compounding. What is the present value of the payments you will receive?

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Jalen Hancock · Answer 1

Total amount won in a lottery, P = $11,000,000

Yearly payments, C = 11,000,000/26 = $423,076.92

The payments will be done at start of every year.

With monthly compounding;

PV = C{ (1-R/12) ^-25*12) / R/12) + (1+R/2), where R = Interest rate = 9% = 0.09

Therefore,

PV = 423076.92*{ (1 - (1+0.09/12) ^-12*25) / 0.09/12} + (1+0.09/12) = $51,310,701.95

Therefore, the present value will be more if the amount is invested.