Problem 6-44 Calculating Present Values [LO1] You just won the TVM Lottery. You

Question

Problem 6-44 Calculating Present Values [LO1]

You just won the TVM Lottery. You will receive $1 million today plus another 10 annual payments that increase by $510,000 per year. Thus, in one year, you receive $1.51 million. In two years you get $2.02 million, and so on.

If the appropriate interest rate is 6.1 percent, what is the present value of your winnings? (Enter your answer in dollars, not millions of dollars. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

You just won the TVM Lottery. You will receive $1 million today plus another 10 annual payments that increase by $510,000 per year. Thus, in one year, you receive $1.51 million. In two years you get $2.02 million, and so on.

Explanation / Answer

what is the present value of your winnings

=1000000+(1000000+510000*1)/(1+6.1%)^1+(1000000+510000*2)/(1+6.1%)^2+(1000000+510000*3)/(1+6.1%)^3+(1000000+510000*4)/(1+6.1%)^4+(1000000+510000*5)/(1+6.1%)^5+(1000000+510000*6)/(1+6.1%)^6+(1000000+510000*7)/(1+6.1%)^7+(1000000+510000*8)/(1+6.1%)^8+(1000000+510000*9)/(1+6.1%)^9+(1000000+510000*10)/(1+6.1%)^10=$27,058,617.00

Answer is $27,058,617.00

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