Question

You just won the lottery, which promises you $540,000 per year for the next 20 years, starting in one year. If your discount rate is 8.25%, what is the present value of your winnings? O $5,470,679 O $5,356,196 O $5,426,920 O $5,204,600 $5,475,199

Answer 1

1.

present value=540000*((1-(1+8.25%)^(-20))/8.25%)

=5204600

2.

total value=4800+1200+3000+3000=12000

beta=(4800/12000)*0.90+(1200/12000)*1.10+(3000/12000)*1.25+(3000/12000)*1.60

=1.1825

3.

total value=7800+1200+3000+3000=15000

beta=(7800/15000)*0.90+(1200/15000)*1.10+(3000/15000)*1.25+(3000/15000)*1.60

=1.126