An investment will pay you $8,000 in 9 years, and it will also pay you $260 at t

Question

An investment will pay you $8,000 in 9 years, and it will also pay you $260 at the end of each of the next 9 years (years 1 thru 9). If the annual interest rate is 5%, how much would you be willing to pay today for this type of investment? (Round your intermediate calculations and final answer to the nearest whole dollar.) A college student is reported in the newspaper as having won $8,500,000 in the Kansas State Lottery. However, as is often the custom with lotteries, she does not actually receive the entire $8.5 million now. Instead she will receive $425,000 at the end of the year for each of the next 20 years. If the annual interest rate is 5%, what is the present value (today's amount') that she won? (ignore taxes). (Round your answer to nearest whole dollar.)

Explanation / Answer

Answer f. Statement showing calculation of PV of Investment Particulars Year Amount 5% Factor Present value C D C X D Cash Inflow Amt. Recd 9          8,000             0.6446                         5,157 Annual Inflow 1-9             260             7.1078                         1,848 Total PV Cash Inflow                         7,005 Answer g. Statement showing calculation of PV of Investment Particulars Year Amount 5% Factor Present value C D C X D Cash Inflow Annual Inflow 1-20     425,000           12.4622                5,296,435 Total PV Cash Inflow                5,296,435

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