Gail has won a lottery that pays her $100,000 at the end of this year and increases by 15 percent per year thereafter for 20 years. Leon has offered Gail $2,500,000 today in exchange for all the money she will receive. If Gail can get 9 percent interest on her savings, is this a good deal? the offer a good deal. Since the present value of the lottery winnings is $ (Round to the nearest dollar as needed.)
Gail has won a lottery that pays her $100,000 at the end of this year and increases by 15 percent per year thereafter for 20 years. Leon has offered Gail $2,500,000 today in exchange for all the money she will receive. If Gail can get 9 percent interest on her savings, is this a good deal? the offer a good deal. Since the present value of the lottery winnings is $ (Round to the nearest dollar as needed.)
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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Transcribed Image Text:Gail has won a lottery that pays her $100,000 at the end of this year and increases by 15 percent per year thereafter for 20 years. Leon has offered Gail $2,500,000 today in exchange for all the
money she will receive. If Gail can get 9 percent interest on her savings, is this a good deal?
Since the present value of the lottery winnings is $
(Round to the nearest dollar as needed.)
the offer
a good deal.
Expert Solution
Step 1: Understanding the given problem
We are given the following information -
| Lottery payment | $100,000 |
| Increase in lottery payment | 15% |
| No. of payments | 20 |
| Amount offered in exchange | $2,500,000 |
| Interest on savings | 9% |
We need to determine -
(i) What is the present value of lottery winnings .?
(ii) Is the offer made by Leon a good deal. ?
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