Suppose that you have won a $4, 900, 000 state lottery. The state pays the winne

Question

Suppose that you have won a $4, 900, 000 state lottery. The state pays the winner off with 20 equal payments over 20 years (i.e. you ge 2f 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%, compounded continuously, what is the present value (your selling price) of your winnings? (answers are rounded) a) $1,413, 503 b) $3, 432, 793 c) $4, 038, 579 d) $4, 240, 508

Explanation / Answer

the annual rate = e0.02 - 1 = 2.0201%

rate = 2.0201%, FV = 0, N = 20, PMT = 4,900,000

use PV funciton in Excel with type as 1

present value ~ 4,038,597 is the closest answer

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