(Related to Checkpoint 6.2) (Present value of annuity payments) The state lotter

Question

(Related to Checkpoint 6.2) (Present value of annuity payments) The state lottery's million-dollar payout provides for $1 million to be paid in 20 installments of $50,000 per payment. The first $50,000 payment is made immediately, and the 19 remaining $50,000 payments occur at the end of each of the next 19 years. If 11 percent is the discount rate, what is the present value of this stream of cash flows? If 22 percent is the discount rate, what is the present value of the cash flows? a. If 11 percent is the discount rate, the present value of the annuity due is $ Round to the nearest cent.) b. If 22 percent is the discount rate, the present value of the annuity due is s(Round to the nearest cent.)

Explanation / Answer

Present value of annuity due=(1+interest rate)*Annuity[1-(1+interest rate)^-time period]/rate

1.Present value=(1.11)*$50000[1-(1.11)^-20]/0.11

= $50000*8.83929421

=$441,964.71(Approx).

2.Present value=(1.22)*$50000[1-(1.22)^-20]/0.22

= $50000*5.441524639

=$272,076.23(Approx).

Related Questions

Navigate

• Browse (All)
• Browse #
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.