Congratulations! You are the sole winner of the $10 million jackpot lottery. You can choose to takethe lump sum option of $2.75 million today (after taxes) or accept 20 annual payments of $250,000(also after taxes). Assume an annual interest rate of 6%. This is a Present Value to Present Valuecomparison. We know the present value of a lump sum payment is 2.75 million. Using the FinanceCalculator, what is the present value of all the annual payments combined over those 20 years?

Given information: Annual payout (PMT) = $250,000 Number of periods (N) = 20 Interest rate per…

Answered: Congratulations! You are the sole…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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You just won the lottery and are offered the following payout: $1,000,000 immediately plus another 6 payments that increase by $500,000 per year. Thus in year one, you receive $1,500,000, etc. The EAR you expect to earn on reinvestment of your money is 8.5%. What is the minimum amount you should be willing to accept as a lump sum today rather than the payout over time? How does the return given in the form of EAR impact your answer?
Assume you won the lottery and that you have two options for receiving the prize money. You can receive $300,000 today or receive payments of $2,700 a month for 20 years. If you can make a nominal 8% return, which option should you take and why? (Hint: To compare investments involving cash flows, you always compare the present value of the future cash flows to identify the most attractive option.) Multiple Choice The $2,700 per month. It is better to have payments spread out than receive a lump sum. The lump sum today. The present value of the lump sum is greater than the payments. The $2,700 per month. The present value of the payments is greater than the lump sum. The lump sum today. It has greater earnings potential. 27
Assume that you have just won the lottery. Lotto officials offered you the choice of two alternative payouts: ₱10,000,000 today; or ₱30,000,000 seven years from now. As a wise and financial literate individual, which payment will you choose if relevant interest rate is 10%? Explain your choice in not more than ten (10) sentences and support it with your computation.
You are planning to buy a lottery ticket for the $5,000,000 jackpot. If you have (Option A). the cash option of receiving $5,000,000 today or you can opt to choose (Option B). the 20 payments of $400,000. Your investment account earns 5% interest compounded annually. What is the future value of OPTION A? (Please use two decimals). Answer: 16,035,677.36
You have just won a large lottery prize. The Lottery Company says the prize will be paid to you in 8 instalments of $70000, with the first payment occurring today (beginning of year 1), and subsequent payments occurring at the beginning of each year. If the typical market interest rates suggest that you can invest money and earn an interest rate of 9%, compounded annually, then how much is the lottery actually worth today? The solution, please. The correct answer is 422307.
The $45 million lottery prize that you have just won actually pays out $4.5 million a year for 20 years. The interest rate is 12.0%. a. If the first payment comes after 1 year, what is the present value of your winnings? Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. b. What is the present value if the first payment comes immediately? Note: Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places. a. Present value b. Present value milion milion
I don't need the answer i just need an explanation on how to do it. Calculate the present value of a $10000 lottery payment for today, and two annual future payments, assuming a nominal interest rate of 15%.
You just won the lottery and are offered the following payout: $1,000,000 immediately plus another 6 payments that increase by $500,000 per year. Thus in year one, you receive $1,500,000, etc. The EAR you expect to earn on reinvestment of your money is 8.5%. What is the minimum amount you should be willing to accept as a lump sum today rather than the payout over time?
Assume you win a lottery that will pay you $10,000 immediately, plus $20,000 one year from now, $30,000 two years from now, $40,000 three years from now, and $75,000 four years from now. You’re curious about how much the lottery commission might offer you as an immediate lump sum instead. What is the minimum amount you should consider accepting today instead? Use a 5% annual discount rate. Please remember that we are ignoring taxation and other considerations and basing this only on the math itself.
Assume you won a million dollars in the Texas Lottery. You have two options: 1) collect S426,000 now or 2) receive $50,000 a year (end-of-year) for the next 20 years. Which option would you opt for assuming a 10% interest rate? Use an Excel formula to justify your choice.
Suppose you wish to have $18500 in 5 years. use the present value formula to find out how much you should invest now at 9% interest, compounded semiannually, in order to have $18,500, 5 years from now. Then calculate the interest. The possible answers are: a. 6587.34 b. 8325.00 c. 10175.00 d. 11912.66 I understand how to do the present value formula but after that I don't understand how to calculate the interest, please help!
You just won the Florida lottery. To receive your winnings, you must select ONE of the twofollowing choices:1. You can receive $1,000,000 a year at the end of each of the next 30 years.2. You can receive a one-time payment of $15,000,000 today.Assume that the current interest rate is 6%. Which option is most valuable?

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