Question

The Caldwell Herald newspaper reported the following story, Frank Ormsby of Caldwell is the state's newest millionaire By choosing the six winning numbers on last week's state lottery. Mr. Ormsby won the week's grand prize totaling $124 million. The State Lottery Commission indicated that Mr. Ormsby will receive his prize in 20 annual installments of $62,000 each. Click here to view Exhibit 130-1 and Exhibit 13B-2. to determine the appropriate discount factor(s) using tables Required: 1. If Mr. Ormsby can invest money at a 10% rate of return, what is the present value of his winnings? (Enter your answer in dollars and not in millions of dollars.) Present value

Answer 1

annuity recipts Present value of of $62000 year Present value annity 62000[1- (140.10) 20 0.10 62000 1-0.44861 6 0.10 ) G2000 (8.5136) = $527843.2 pproximately This is not exact amount, intermedi -ate calculations are rounded off. Since, we are to receiving $62000 [year upto 20 years, we have to use prement value of annuity formula. *