Question

Assume you just won the state lottery. Your prize can be taken either in the form of $47,131 at the endof each of the next 15 years. How much are you will to accept today as a lump sum if interest rate is9%?Question 65 pts

Answer 1

$47,131 at the end of each of the next 15 years, that is

15 x $47131

= $706965

$\begin{gathered} \text{Lump sum} \\ A\text{ = p(1 + }\frac{r}{n})^{nt} \end{gathered}$

P = $47131

t = 15 years

r = 9%

n = 1

$\begin{gathered} \text{Lump sum } \\ A\text{ = 47131(1 + }\frac{9}{100})^{15} \\ A=47131(1+0.09)^{15} \\ A=47131(1.09)^{15} \\ A\text{ = 47131 x 3.642} \\ A\text{ = \ 171673.84} \end{gathered}$