Appendix 1: Exercise 14-19 Present Value of an Annuity On January 1, 2012, you w

Question

Appendix 1: Exercise 14-19
Present Value of an Annuity
On January 1, 2012, you win $110,000,000 in the state lottery. The $110,000,000 prize will be paid in equal installments of $11,000,000 over 10 years. The payments will be made on December 31 of each year, beginning on December 31, 2012. If the current interest rate is 6.5%, determine the present value of your winnings. Use Table 1 and Table 2 in the present value tables in Appendix A. Round to nearest whole dollar.

Table 1
http://sjc.cengagenow.com/ilrn/books/waac24h/images/ch14/waac24_ch14_table1.gif

Table 2
http://sjc.cengagenow.com/ilrn/books/waac24h/images/ch14/waac24_ch14_table2.gif

Explanation / Answer

PVoa = PMT * (1 - (1+i)^-n ) / i PVoa = $11,000,000 * 7.18883 PVoa = $79,077,133

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