Question 1) The Arkansas Lottery has just informed you that you have won $1 mill

Question

Question 1) The Arkansas Lottery has just informed you that you have won $1 million. Congratulations! The amount is to be paid out at the rate of $50,000 a year for 20 years. With a discount rate of 12%, what is the present value of your winnings?

Question 2) Elvis Andrus invests $2,000 in a mint condition Nolan Ryan baseball card. He expects the card to increase in value by 20% a year for the next 5 years. After that, he anticipates a 15% annual increase for the next 3 years. What is the projected value of the card after 8 years?

Question 3) Aunt Martha invested $100,000 10 years ago at 12%, compounded quarterly. What is the value of her investment now?

Explanation / Answer

1. We have FV = $1,000,000, ANnual Payment PMT=50000
Period = nper = 20, Rate = 12%

So Present Value = PV(Rate,nper,PMT)
= PV(12%,20,-50000)
= $3,73,472

2. PV = 2000, Rate=20%, nper = 5
So FV = FV(Rate,nper,PMT,PV) = FV(20%,5,0,2000)
ie FV at t5 = $4,977

Now nper = 3, Rate =15%, PV=$4,977

SO at T8, Proj Value = FV(15%,3,0,4977) = $7,569

3. AMt Invested =PV = 100,000
Qtrly compounding. SO no of periods = 10Yr*4 period per Yr = 40
SO Rate = 12%/4
SO current value =FV(rate,nper,PMT,PV)
= FV(12%/4,10*4,0,100000)
= $3,26,204

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.