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Finance lottery question?
Homework problem: You and 11 coworkers win 12million ( or 1million each) from the state lottery. Assuming you each receive your share over 20years and that the state lottery earns a 6% return on its funds, what is the present value of your prize before taxes if you request the "up-front cash" option?
for this answer I got 312,000, is this right? If I'm wrong please give me the correct formula or maybe I was looking at the wrong chart.
1 Answer
- ProfLv 77 years ago
Normally the lottery would pay you $50,000 a year for 20 years. You would get the first $50,000 immediately, so you have to wait 19 years for the rest. You have to find the preset value of an ordinary annuity of 19 $50,000 payments discounted to the present at 6%.
I get $557,905.82 + $50,000
Alternatively it's the present value of annuity due where N = 20 , i = 6% and PMT = $50,000.
