alue 0.00 points The Clearinghouse Sweepstakes has just informed you that you ha

Question

alue 0.00 points The Clearinghouse Sweepstakes has just informed you that you have won $1 million. The amount is to be paid out at the ra $62,000 a year for the next 19 years With a discount rate of 12 percent, what is the present value of your winnings? Use Appendix D for an approximate answer calculate your final answer using the formula and financial calculator methods. (Do not round intermediate calculations.R your final answer to 2 decimal places.) Present value Hints References eBook & Resources Hint #1 Check my work

Explanation / Answer

Let’s assume that first payment will be received at the end of the year.

Present value of annuity is the present worth of cash flows that is to be received in the future, if future value is known, rate of interest in r and time is n then PV of annuity is

PV of annuity = P[1- (1+ r)^-n]/ r

= 62000[1- (1+ 0.12)^-19]/ 0.12

= 62000[1- (1.12)^-19]/ 0.12

= 62000[1- 0.116106776890371]/ 0.12

= 62000[0.883893223109629/ 0.12]

= 62000[7.36577685924691]

= 456678.17

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