Question

Option 1: You won $5,000,000 in the Massachusetts Lottery's Halloween Bonanza game. It pays out 10 years from now. How much is it worth today? Option 2: You won a similar prize, but it pays out $500,0000/yr for the next 10 years. Option 3: You won a prize that pays out $600,000/yr for the next 15 years. What is your prize worth today assuming a 2% interest rate? Which prize would you rather receive assuming it is taxable at a 55% tax rate? Please explain your answer with all calculations. Let us know if you used the TVM tables, or if you used a financial calculator. Then, tell us in great detail what steps you took to arrive st your answer.

Answer 1

5,000,000 Option 3 Future Value (FV) Time (N) 101 15 Option 1 Future Value (F Time (N) Rate® PMT To Find PV Option 2 Future Value (FV) Time (N) Rate PMT To Find PV PV 101 Rate 2% 2% 5,000,000 01 6,000,000 PMT To Find PV PV PV 4,101,741 44,912,925 77,095,581 Option 3 would be chosen as prize money The above calculations are made on Financial Calculator N Using the third row of the calculator we fed the values from above table and press the respective tab Years 1/Y Rate of Interest PMT Anuity Payment FV Future Value After feeding the above information we use the CPT tab in the left most corner of the calculator and then press PV to get the present value

BAII Plus LA TEXAS INSTRUMENTS BUSINESS ANALYST QUIT CPT SET ENTER DELINS I ONOFF 2ND CF XP/Y FLY NPV AMORT PV IRR BGN PMT CLR TVM FV N 1/Y RAND % 1/X TAN HYP SIN COS INV yx DATA BOND LN ROUND +TXX DEPR BRKEVN STO 4% 5 ICONV RCL DATE 6 PROFIT 3 RESET CLR WORK 2 CEIC MEM FORMAT