Lottery Payouts A state lottery commission pays the winner of the “Million Dolla

Question

Lottery Payouts A state lottery commission pays the winner of the “Million Dollar” lottery 20 installments of $50,000 per year. The winner receives the first payment on the day of the win and the commission pays each payment at the beginning of each year for the next 19 years. (==> Annuity due with 19 payments) Determine how much money the commission should have in the bank initially to guarantee the payments, assuming that the balance on deposit with the bank earns interest at the rate of 8% per year compounded yearly. (Calculate by using Excel Formulas)

Explanation / Answer

Use Excel formulas

PV(0.08,19,-50000,0,1)

= $518594.36

So, they should have $518594.36 in the bank initially to guarantee the payments

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