You just won the TVM Lottery. You will receive $1 million today plus another 10
ID: 2757371 • Letter: Y
Question
You just won the TVM Lottery. You will receive $1 million today plus another 10 annual payments that increase by $670,000 per year. Thus, in one year you receive $1.67 million. In two years, you get $2.34 million, and so on.
If the appropriate interest rate is 7.7 percent, what is the present value of your winnings? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Present value=
You just won the TVM Lottery. You will receive $1 million today plus another 10 annual payments that increase by $670,000 per year. Thus, in one year you receive $1.67 million. In two years, you get $2.34 million, and so on.
Explanation / Answer
PV is the cash flows times their respective PV factors.
Year
cash flow
PV factor 7.7%
PV
1
1000000
0.92851
928505.11
2
1670000
0.86212
1439743.29
3
2340000
0.80048
1873133.57
4
3010000
0.74325
2237194.19
5
3680000
0.69012
2539623.30
6
4350000
0.64078
2787372.67
7
5020000
0.59496
2986715.08
8
5690000
0.55243
3143305.84
9
6360000
0.51293
3262239.08
10
7030000
0.47626
3348099.01
11
7700000
0.44221
3405006.84
27950937.97
Therefore, PV of winning amount would be $27,950,937.97.
Year
cash flow
PV factor 7.7%
PV
1
1000000
0.92851
928505.11
2
1670000
0.86212
1439743.29
3
2340000
0.80048
1873133.57
4
3010000
0.74325
2237194.19
5
3680000
0.69012
2539623.30
6
4350000
0.64078
2787372.67
7
5020000
0.59496
2986715.08
8
5690000
0.55243
3143305.84
9
6360000
0.51293
3262239.08
10
7030000
0.47626
3348099.01
11
7700000
0.44221
3405006.84
27950937.97
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.