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5 November, 12:14

You have just won a lottery! You will receive $50,000 a year beginning one year from now for 20 years. If your required rate of return is 10%, what is the present value of your winning lottery ticket

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  1. 5 November, 16:06
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    The prize is worth $425,678.19.

    Explanation:

    Giving the following information:

    Cash flow = $50,000

    The number of years = 20 years.

    Rate of return = 10%

    First, we need to calculate the final value using the following formula:

    FV = {A*[ (1+i) ^n-1]}/i

    A = annual cash flow

    FV = {50,000*[ (1.1^20) - 1]}/0.1

    FV = $2,863,749.98

    Now, the present value:

    PV = FV / (1+i) ^n

    PV = 2,863,749.98 / (1.1^20)

    PV = $425,678.19
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