Question

How to solve this problem in Excel Sheet?

2. Congratulations, you are a lottery winner. As a result, you will receive $3,500 a month for the next 15 years. The first payment is one month from today. Assume that the annual interest rate is 6%. A firm approaches you and is willing to give you $600,000 now if you sign over the lottery winnings to the firm. Is this a good deal? Make sure you show your calculations that provide the rationale for your answer.

Answer 1

We have to calculate the present value of all the monthly payments at the annual interest rate of 6% i.e. monthly rate of 0.5%

As calculated using the table below, present value of monthly payments is 414,762.30. Hence you should take 600,000 now.

Month	Payment	Present Value of payment	Present Value of all the payments
1	3500	3,482.59	414762.30
2	3500	3,465.26
3	3500	3,448.02
4	3500	3,430.87
5	3500	3,413.80
6	3500	3,396.81
7	3500	3,379.91
8	3500	3,363.10
9	3500	3,346.37
10	3500	3,329.72
11	3500	3,313.15
12	3500	3,296.67
13	3500	3,280.27
14	3500	3,263.95
15	3500	3,247.71
16	3500	3,231.55
17	3500	3,215.47
18	3500	3,199.48
19	3500	3,183.56
20	3500	3,167.72
21	3500	3,151.96
22	3500	3,136.28
23	3500	3,120.68
24	3500	3,105.15
25	3500	3,089.70
26	3500	3,074.33
27	3500	3,059.03
28	3500	3,043.82
29	3500	3,028.67
30	3500	3,013.60
31	3500	2,998.61
32	3500	2,983.69
33	3500	2,968.85
34	3500	2,954.08
35	3500	2,939.38
36	3500	2,924.76
37	3500	2,910.21
38	3500	2,895.73
39	3500	2,881.32
40	3500	2,866.99
41	3500	2,852.72
42	3500	2,838.53
43	3500	2,824.41
44	3500	2,810.36
45	3500	2,796.37
46	3500	2,782.46
47	3500	2,768.62
48	3500	2,754.84
49	3500	2,741.14
50	3500	2,727.50
51	3500	2,713.93
52	3500	2,700.43
53	3500	2,686.99
54	3500	2,673.63
55	3500	2,660.32
56	3500	2,647.09
57	3500	2,633.92
58	3500	2,620.82
59	3500	2,607.78
60	3500	2,594.80
61	3500	2,581.89
62	3500	2,569.05
63	3500	2,556.27
64	3500	2,543.55
65	3500	2,530.89
66	3500	2,518.30
67	3500	2,505.77
68	3500	2,493.31
69	3500	2,480.90
70	3500	2,468.56
71	3500	2,456.28
72	3500	2,444.06
73	3500	2,431.90
74	3500	2,419.80
75	3500	2,407.76
76	3500	2,395.78
77	3500	2,383.86
78	3500	2,372.00
79	3500	2,360.20
80	3500	2,348.46
81	3500	2,336.78
82	3500	2,325.15
83	3500	2,313.58
84	3500	2,302.07
85	3500	2,290.62
86	3500	2,279.22
87	3500	2,267.88
88	3500	2,256.60
89	3500	2,245.37
90	3500	2,234.20
91	3500	2,223.09
92	3500	2,212.03
93	3500	2,201.02
94	3500	2,190.07
95	3500	2,179.18
96	3500	2,168.33
97	3500	2,157.55
98	3500	2,146.81
99	3500	2,136.13
100	3500	2,125.50
101	3500	2,114.93
102	3500	2,104.41
103	3500	2,093.94
104	3500	2,083.52
105	3500	2,073.15
106	3500	2,062.84
107	3500	2,052.58
108	3500	2,042.37
109	3500	2,032.20
110	3500	2,022.09
111	3500	2,012.03
112	3500	2,002.02
113	3500	1,992.06
114	3500	1,982.15
115	3500	1,972.29
116	3500	1,962.48
117	3500	1,952.71
118	3500	1,943.00
119	3500	1,933.33
120	3500	1,923.71
121	3500	1,914.14
122	3500	1,904.62
123	3500	1,895.15
124	3500	1,885.72
125	3500	1,876.33
126	3500	1,867.00
127	3500	1,857.71
128	3500	1,848.47
129	3500	1,839.27
130	3500	1,830.12
131	3500	1,821.02
132	3500	1,811.96
133	3500	1,802.94
134	3500	1,793.97
135	3500	1,785.05
136	3500	1,776.17
137	3500	1,767.33
138	3500	1,758.54
139	3500	1,749.79
140	3500	1,741.08
141	3500	1,732.42
142	3500	1,723.80
143	3500	1,715.23
144	3500	1,706.69
145	3500	1,698.20
146	3500	1,689.75
147	3500	1,681.35
148	3500	1,672.98
149	3500	1,664.66
150	3500	1,656.38
151	3500	1,648.13
152	3500	1,639.94
153	3500	1,631.78
154	3500	1,623.66
155	3500	1,615.58
156	3500	1,607.54
157	3500	1,599.54
158	3500	1,591.59
159	3500	1,583.67
160	3500	1,575.79
161	3500	1,567.95
162	3500	1,560.15
163	3500	1,552.39
164	3500	1,544.66
165	3500	1,536.98
166	3500	1,529.33
167	3500	1,521.72
168	3500	1,514.15
169	3500	1,506.62
170	3500	1,499.12
171	3500	1,491.67
172	3500	1,484.24
173	3500	1,476.86
174	3500	1,469.51
175	3500	1,462.20
176	3500	1,454.93
177	3500	1,447.69
178	3500	1,440.49
179	3500	1,433.32
180	3500	1,426.19