Question

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Problem 5-38 Annuity Due (L03) The $46.0 million lottery payment that you have just won actually pays $2.3 million per year for 20 years. The interest rate is 8% a. If the first payment comes in 1 year, what is the present value of the winnings? (Do not round intermediate calculations. Enter you answer in dollars, not millions, rounded to 2 decimal places.) Present value b. What is the present value if the first payment comes immediately? (Do not round Intermediate calculations. Enter your answer in dollars, not millions, rounded to 2 decimal places.) Present value

Answer 1

a. Present value = PMT*(1-(1/(1+r^n)))/ $22,581,739.04 2,300,000*(1-(1/(1.08420)))/0.08 b. Present value = PMT*(1-(1/(1+r^n)))/ (1+r) $24,388,278.16 2,300,000*(1-(1/(1.08^20))}/0.08 x 1.08