The Caldwell Herald newspaper reported the following story: Frank Ormsby of Cald
ID: 2493570 • Letter: T
Question
The Caldwell Herald newspaper reported the following story: Frank Ormsby of Caldwell is the state’s newest millionaire. By choosing the six winning numbers on last week’s state lottery, Mr. Ormsby has won the week’s grand prize totaling $1.34 million. The State Lottery Commission has indicated that Mr. Ormsby will receive his prize in 20 annual installments of $67,000 each.
Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.
If Mr. Ormsby can invest money at a 9% rate of return, what is the present value of his winnings? (Use the appropriate table to determine the discount factor(s).)
The Caldwell Herald newspaper reported the following story: Frank Ormsby of Caldwell is the state’s newest millionaire. By choosing the six winning numbers on last week’s state lottery, Mr. Ormsby has won the week’s grand prize totaling $1.34 million. The State Lottery Commission has indicated that Mr. Ormsby will receive his prize in 20 annual installments of $67,000 each.
Explanation / Answer
Year Cash flows PVF @ 9% Present Value 1 67000 0.92 61,467.89 2 67000 0.84 56,392.56 3 67000 0.77 51,736.29 4 67000 0.71 47,464.49 5 67000 0.65 43,545.40 6 67000 0.60 39,949.91 7 67000 0.55 36,651.29 8 67000 0.50 33,625.04 9 67000 0.46 30,848.66 10 67000 0.42 28,301.52 11 67000 0.39 25,964.70 12 67000 0.36 23,820.83 13 67000 0.33 21,853.97 14 67000 0.30 20,049.51 15 67000 0.27 18,394.05 16 67000 0.25 16,875.27 17 67000 0.23 15,481.90 18 67000 0.21 14,203.58 19 67000 0.19 13,030.81 20 67000 0.18 11,954.87 Value 1340000 611,612.56
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