The state lottery claims that its grand prize is $1 million. The lucky winner wi

Question

The state lottery claims that its grand prize is $1 million. The lucky winner will receive $50,000 upon presenation of the winning ticket plus $50,000 at the end of each year for the next 19 years. Show your work. If you use excel show formulas.

A) Why isn't this really a million dollar prize?

B) What would it actually be worth to you?

C) what would the twenty yearly payments need to be for the present value of the lottery to be $1 million. (hint: make sure to determine what type of an annuity the lottery represents as the first step.)

Explanation / Answer

ANS :- No, its not a million dollar price Because after 19 yrs this amount will get discounted means he can invested $50000 today then he can get some income for 19 yrs. so its not a million dollar price.

II) It is assumed that discounted rate or required rate of intrest is 15% then

Its actually worth is = $50000(pvaf15%,1 yrs)+$50000 (pvaf15%,19yrs),

= $50000 *.870 + $50000*.0703 = $ 47015

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