You win a scratch off lottery ticket that promises to pay an initial payment of 10,000...
You win a scratch off lottery ticket that promises to pay an initial payment of 10,000 next year and grow at a rate of 2% forever. If the discount rate is 5%, what is the present value of the lottery ticket?
1) 333333.33
2) 444444.44
3) 222222.22
4) 435691.23
5) None of the above
Homework Answers
Present value of lottery ticket= initial payment next year/(Discount rate-Growth rate)
=$10,000/(0.05-0.02)
which is equal to
=$333333.33(Approx).
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