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Present Value.  Winners of the Georgia Lotto drawing are given the choice of receiving the winning...

Present Value.  Winners of the Georgia Lotto drawing are given the choice of receiving the winning amount divided equally over 22 years or as a​ lump-sum cash option amount. The cash option amount is determined by discounting the annual winning payment at 8​% over 22 years. This week the lottery is worth ​$13 million to a single winner. What would the cash option payout​ be?

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Answer #1

Annual winning payment

13000000

Annual winning payment

590909.0909

590909.0909

present value of cash option = Using present value function in MS excel

pv(rate,nper,pmt,fv,type) rate = 8% pmt = 22 pmt = 590909.1 fv = 0 type = 0

PV(8%,22,590909.1,0,0)

($6,027,712.26)
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