5. The state lottery\'s million-dollar payout provides for $1 million to be paid

Question

5. The state lottery's million-dollar payout provides for $1 million to be paid out over the course of 19 years in equal cash amounts. The first payment is made immediately, and the remaining 19 payments occur at the end of each of the next 19 years. If 10% is the discount rate, what is the present value of this stream of cash flows? Hint: First calculate the payment amount. 5. The state lottery's million-dollar payout provides for $1 million to be paid out over the course of 19 years in equal cash amounts. The first payment is made immediately, and the remaining 19 payments occur at the end of each of the next 19 years. If 10% is the discount rate, what is the present value of this stream of cash flows? Hint: First calculate the payment amount. 5. The state lottery's million-dollar payout provides for $1 million to be paid out over the course of 19 years in equal cash amounts. The first payment is made immediately, and the remaining 19 payments occur at the end of each of the next 19 years. If 10% is the discount rate, what is the present value of this stream of cash flows? Hint: First calculate the payment amount.

Explanation / Answer

So the present value of the cash flows is $468,246 Year no Payment $ Discount Rate @10% PV 0            50,000 1      50,000.00 1            50,000                                0.909      45,454.55 2            50,000                                0.826      41,322.31 3            50,000                                0.751      37,565.74 4            50,000                                0.683      34,150.67 5            50,000                                0.621      31,046.07 6            50,000                                0.564      28,223.70 7            50,000                                0.513      25,657.91 8            50,000                                0.467      23,325.37 9            50,000                                0.424      21,204.88 10            50,000                                0.386      19,277.16 11            50,000                                0.350      17,524.69 12            50,000                                0.319      15,931.54 13            50,000                                0.290      14,483.22 14            50,000                                0.263      13,166.56 15            50,000                                0.239      11,969.60 16            50,000                                0.218      10,881.46 17            50,000                                0.198        9,892.23 18            50,000                                0.180        8,992.94 19            50,000                                0.164        8,175.40 Total      1,000,000    468,246.00 So the present value of the cash flows is $468,246

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