On January 1, you win $50,000,000 in the state lottery. The $50,000,000 prize will be paid in equal installments of $6,250,000 over eight years. The payments will be made on December 31 of each year, beginning on December 31 of this year. The current interest rate is 5.5%. This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the question below.
EXCEL SHEET:
Present value of an annuity | |||
DATA | |||
Sum of prize | $50,000,000 | ||
Annual payment | $6,250,000 | ||
Number of years | 8 | ||
Interest rate | 5.5% | ||
Date of win | January 1 | ||
Date of payments | December 31 of each year | ||
Using formulas and cell references, perform the required analysis, and input your answer into the Amount column. Transfer the numeric result for the green entry cell (B14) into the appropriate field in CNOWv2 for grading. | |||
Amount | Formula | ||
PV of annual payments |
Determine the present value of your winnings. Round your answer to the nearest dollar.
$ _____________
Solution:
DATA | |
Sum of prize | $50,000,000.00 |
Annual payment | $6,250,000.00 |
Number of years | 8 |
Interest rate | 5.50% |
Date of win | 1-Jan |
Date of payments | December 31 of each year |
PV of annual payments | $39,591,037 |
On January 1, you win $50,000,000 in the state lottery. The $50,000,000 prize will be paid...
On January 1 you win $50,000,000 in the state lottery. The $50,000,000 prize will be paid in equal installments of $6,250,000 over eight years. The payments will be made on December 31 of each year, beginning on December 31 of this year. If the current interest rate is 5%, determine the present value of your winnings. Use the present value tables in Exhibit 7. Round to the nearest whole dollar. Exhibit 7: 8 periods at 6.46321
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