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You have just won the lottery and will receive $530,000 in one year. You will receive...

You have just won the lottery and will receive $530,000 in one year. You will receive payments for 21 years, and the payments will increase 5 percent per year. If the appropriate discount rate is 11 percent, what is the present value of your winnings? Multiple Choice $19,541,407 $5,840,094 $19,541,407 $6,083,431 $59,223

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Answer #1

answer : $6,083,431

Present value of the growing annuity=

(First payment/(DR - GR)) * (1 - (1+GR/1+DR)^n)

Where DR = Yearly Discount rate

GR = Yearly growth rate

n = periods

Putting the values in the formula:

(530000/(0.11-0.05)) * (1 - (1.05/1.11)^21)=

6083430.521 or 6083431
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