Suppose that you have won a $7, 700,000 state lottery. The state pays the winner

Question

Suppose that you have won a $7, 700,000 state lottery. The state pays the winner off with 20 equal payments over 20 years (i.e. you get 1/20 of the total winnings yearly). You, however, would like to get all the money immediately and wish to sell the winning ticket immediately. Assuming that you could invest the state payouts at an annual interest rate of 2.4%, compounded continuously, what is the present value (your selling price) of your winnings? (answers are rounded) $6, 115, 350 $7, 032, 652 $2, 140, 372 $6, 421, 117 $7, 644, 187

Explanation / Answer

Amount Won $7,700,000 Rate 2.40% Nper 20 Payment each Year (PMT) $385,000 Present value of Winning $6,058,912.99 PV(2.40%,20,-$385,000)

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