Question

16. A lottery claims its grand prize is $10 million, payable over 5 years at $2,000,000 per year. If the first payment

Answer 1

Answer Is

$89,30,211.23

Explanation for the answer:

In order to calculate the actual worth of the prize, each $2000000 payment must be "brought back" to their current value at a 6% per year rate. Since the first payment is made immediately:

The grand prize is really worth is $8,930,211.23

=$2000000/(1.06)^0+$2000000/(1.06)^1+$2000000/(1.06)^2+$2000000/(1.06)^3+$2000000/(1.06)^4

A	B		C=A/B
$2000000	1.06^0	=1	$2000000
$2000000	1.06^1	=1.06	$1886792
$2000000	1.06^2	=1.1236	$1779993
$2000000	1.06^3	=1.191	$1679239
$2000000	1.06^4	=1.2625	$1584187
			$8930211.23