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The Lottery: Calculating Present Value

Question: The $40 million lottery payment that you just won actually pays $2 million per year for 20 years. If the discount rate is 8%, and the first payment comes in 1 year, what is the present value of the winnings? What if the first payment comes immediately?

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1. If the first payment comes in 1 year, we can use the PVIFA table to get the annuity factor to find out the present value. The ...

Solution Summary

This solution explains how to calculate the present value of lottery winnings using ordinary annuity and annuity due. All calculations are shown and interpretations of the results are also included.