Question

You have just won the lottery and will receive $490,000 in one year. You will receive payments for 30 years, which will increase 3 percent per year. The appropriate discount rate is 11 percent.

Required:

What is the present value of your winnings?

rev: 09_17_2012

$21,405

$51,641,854

$51,641,854

$5,256,545

$5,475,568

Answer 1

Please provide rating..

	Computation of present value of the lottery
	i		ii	iii=i*ii
year	Cash flow =103% of prior year		PVIF @ 11%	present value
1	490,000		0.9009	441,441
2	504,700	=490000*103%	0.8116	409,626
3	519,841	=504700*103%	0.7312	380,103
4	535,436		0.6587	352,708
5	551,499		0.5935	327,288
6	568,044		0.5346	303,700
7	585,086		0.4817	281,811
8	602,638		0.4339	261,501
9	620,717		0.3909	242,654
10	639,339		0.3522	225,165
11	658,519		0.3173	208,937
12	678,275		0.2858	193,879
13	698,623		0.2575	179,905
14	719,582		0.2320	166,939
15	741,169		0.2090	154,908
16	763,404		0.1883	143,743
17	786,306		0.1696	133,383
18	809,895		0.1528	123,770
19	834,192		0.1377	114,850
20	859,218		0.1240	106,572
21	884,995		0.1117	98,891
22	911,544		0.1007	91,764
23	938,891		0.0907	85,150
24	967,057		0.0817	79,013
25	996,069		0.0736	73,319
26	1,025,951		0.0663	68,035
27	1,056,730		0.0597	63,131
28	1,088,432		0.0538	58,581
29	1,121,085		0.0485	54,359
30	1,154,717		0.0437	50,441
present value				5,475,568
Correct answer =		5,475,568