Question

You have just won the lottery. You will receive $2,600,000 today, and then receive 40 payments of $1,300,000 These payments will start one year from now and will be paid every six months. A representative from Greenleaf Investments has offered to purchase all the payments from you for $25 million. The interest rate is an APR of 8 percent compounded daily. Assume there are 12 months in a year, each with 30 days.

What is the present vale of cash flows from your lottery winnings?

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

V A ENG 0525 16 01 2020 23 GR636 7 X GM GN for GOGP GQ GR GS GT GU GV GW GX - 636 637 638 effective six month rate = (1+ daily rate) 180 - 1 639 now APR = 8%, so daily rate = 8%/360 = 640 641 0.02222222% effective six month rate = effective six month rate = (1+0.0002222222) 180 - 1 4.08061491% 645 now PVA = PVA = PVA = PMT*(1/r)*(1-(1/(1+r)^n)) 1300000*(1/0.0408061491)*(1-(1/(1+0.0408061491) 40)) 25424792.41 646 647 648 649 650 651 652 653 654 655 656 657 Now as payment starts from 6 months from today PV = PVA/(1+r) PV = 25424792.41/(1+0.0408061491) PV = 24427980.59 ANSWER SO VALUE OF WINNINGS TODAY 2600000 +24427980.59 = 27027980.59 ANSWER 658 DO NOT ACCEPT GREENLEAF INVESTMENT OFFER AS THEY ARE OFFERING "LOWER" AMOUNT THAN PRESENT VALUE OF WINNINGS 659 660 667 663 ... LOAN OPTIONS pv, fv, annuity CAP STRU VALUE PM, PMT loan with points LOCK BOX DILUTION DOLLAR COST AVG EXPO NPER APR CPI ear PVA pva 52 53 ST... 6