Question

Suppose you win the Publishers Clearinghouse $10 million sweepstakes. The money is paid in equal annual end-of-year installments of $333,333.33 over 30 years. If the appropriate discount rate is 5%, how much is the sweepstakes actually worth today

Answer 1

Answer:

the actual worth today is  $5,124,150.29

Explanation:

The computation of the actual worth today is as follows:

= (Year end annual payments) ÷ (rate of interest) × (1 - (1 + rate of interest)^-time period

= ($333,333.33) ÷0.05 × (1 - (1 + 0.05)^-30

= $5,124,150.29

hence, the actual worth today is  $5,124,150.29

The above formula should be applied