You are planning to buy a lottery ticket for the $10,000,000 jackpot. If you have (Option...
You are planning to buy a lottery ticket for the $10,000,000 jackpot. If you have (Option A). the cash option of receiving $8,000,000 today or you can opt to choose (Option B). the 20 payments of $400,000. Your investment account earns 5% interest compounded annually.
What is the present value of OPTION B?
Homework Answers
Ans $ 4,984,884.14
The present value of OPTION B is $ 4,984,884.14
| Annuity PV Factor = | P [ 1 - ( 1 + r )^-n ] |
| r | |
| 400000* ( 1 - ((1 / (1 + 5%)^20))) | |
| 5% | |
| 249244.2069 | |
| 0.05 | |
| 4984884.14 |
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