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9 December, 15:03

Rita Gonzales won the $62 million lottery. She is to receive $2.8 million a year for the next 20 years plus an additional lump sum payment of $6 million after 20 years. The discount rate is 14 percent. What is the current value of her winnings?

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  1. 9 December, 16:01
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    Total current value is $18,982,680

    Explanation:

    Given dа ta:

    Price of lottery is $62 million

    discount rate is 14%

    received amount in 20 year is $2.8 million

    lump sum payment after 20 year is $6 million

    PVAF value for 20 year and 14 % is 6.6231 [ from PVAF table ]

    present value of $2.8 million for 20 year = 2800000 * 6.6231 = $18,544,680

    Present value of $6 million at end of 20 year is = 6 000000 * PVF (20 year, 14%)

    from table PVF value for 20 year and 14% is 0.073

    present value = 6000000 * 0.073 = 438000

    total current value = 18,544,680 + 438000 = $18,982,680
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