Play-2-Win is the latest lottery game in your country, and you happen to be the latest winner of $10.5 million. Your government has a guarantee on the funds and will not be paid before 3 years from today. You can however sell your claim today at a rate of 8 percent for a lump sum cash payment. What is the least amount you will sell your claim?
Play-2-Win is the latest lottery game in your country, and you happen to be the latest winner of $10.5 million. Your government has a guarantee on the funds and will not be paid before 3 years from today. You can however sell your claim today at a rate of 8 percent for a lump sum cash payment. What is the least amount you will sell your claim?
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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- Play-2-Win is the latest lottery game in your country, and you happen to be the latest winner of $10.5 million. Your government has a guarantee on the funds and will not be paid before 3 years from today. You can however sell your claim today at a rate of 8 percent for a lump sum cash payment. What is the least amount you will sell your claim?
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Step 1
Solution:
An amount invested somewhere earns interest on it. Amount in today’s terms is called present value and amount in future terms is called as future value.
The future amount equivalent to today’s terms value is known as present value.
Present value = Future value / (1+i)t
where, t = number of periods
i = periodic interest rate
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