January 1, you win $2,500,000 in the state lottery. The $2,500,000 prize will be paid in equal installments of $250,000 over 10 years. The payments will be made on December 31 of each year, beginning on December 31. If the current interest rate is 6%, determine the present value of your winnings
January 1, you win $2,500,000 in the state lottery. The $2,500,000 prize will be paid in equal installments of $250,000 over 10 years. The payments will be made on December 31 of each year, beginning on December 31. If the current interest rate is 6%, determine the present value of your winnings
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Present Value of an Annuity
On January 1, you win $2,500,000 in the state lottery. The $2,500,000 prize will be paid in equal installments of $250,000 over 10 years. The payments will be made on December 31 of each year, beginning on December 31. If the current interest rate is 6%, determine the present value of your winnings. Use the present value tables in Exhibit 7. Round to the nearest whole dollar.
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Exhibit 7
Present Value of an Annuity of $1 at Compound Interest
Periods
4%
4%%
5%
5%%
6%
6%%
7%
10%
11%
12%
13%
0.96154
0.95694
0.95238
0.94787
0.94340
0.93897
0.93458
0,90909
0.90090
0.89286
0,88496
2
1.88609
1.87267
1.85941
1.84632
1.83339
1.82063
1.80802
1.73554
1.71252
1.69005
1.66810
2.77509
2.74896
2.72325
2.69793
2.67301
2.64848
2.62432
2.48685
2.44371
2.40183
2.36115
4
3.62990
3.58753
3.54595
3.50515
3.46511
3.42580
3.38721
3.16987
3.10245
3.03735
2.97447
4.45182
4.38998
4.32948
4.27028
4.21236
4.15568
4.10020
3.79079
3.69590
3.60478
3.51723
6
5.24214
5.15787
5.07569
4.99553
4.91732
4.84101
4.76654
4.35526
4.23054
4.11141
3.99755
7
6.00205
5.89270
5.78637
5.68297
5.58238
5.48452
5.38929
4.86842
4.71220
4.56376
4.42261
6.73274
6.59589
6.46321
6.33457
6.20979
6.08875
5.97130
5.33493
5.14612
4.96764
4.79677
7.43533
7.26879
7.10782
6.95220
6.80169
6.65610
6.51523
5.75902
5.53705
5.32825
5.13166
10
8.11090
7.91272
7.72173
7.53763
7.36009
7.18883
7.02358
6.14457
5.88923
5.65022
5.42624
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