(Related to Checkpoint 6.2) (Present value of annuity payments) The state lotter
ID: 2799407 • Letter: #
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 8 percent is the discount rate, what is the present value of this stream of cash flows? If 16 percent is the discount rate, what is the present value of the cash flows? a. 118 percent is the discount rate, the present value of the annuity due is $ . (Round to the nearest cent.)Explanation / Answer
PV factor of annuity due = Annual payment * PV factor of annuity due @ 8% for 20 years
= 50000 * 10.6036
= $530180
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