You just won the TVM Lottery. You will receive $1 million today plus another 10

Question

You just won the TVM Lottery. You will receive $1 million today plus another 10 annual payments that increase by $650,000 per year. Thus, in one year, you receive $1.65 million. In two years you get $2.30 million, and so on.  

If the appropriate interest rate is 7.5 percent, what is the present value of your winnings? (Enter your answer in dollars, not millions of dollars. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Present Value: $ _______

If the appropriate interest rate is 7.5 percent, what is the present value of your winnings? (Enter your answer in dollars, not millions of dollars. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Present Value: $ _______

Explanation / Answer

7.5% millions YEAR CASH FLOW PV OF $1 @7.5% PV OF CASH FLOWS 0 1 1 1 1 1.65 0.930232558 1.534883721 2 2.3 0.865332612 1.990265008 3 2.95 0.80496057 2.37463368 4 3.6 0.74880053 2.695681907 5 4.25 0.696558632 2.960374187 6 4.9 0.647961518 3.17501144 7 5.55 0.602754901 3.3452897 8 6.2 0.560702233 3.476353847 9 6.85 0.521583473 3.57284679 10 7.5 0.485193928 3.638954462 Total Present Value 29.76429474million 29764294.74

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