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You just won a lottery that promises to pay you $1 million exactly 10 years from today. Because the $1 million payment is guaranteed by the state in which you live, opportunities exist to sell the claim today for an immediate lump-sum cash payment. What is the least you will sell your claim for if you could earn 8.73 % on similar-risk investments during the 10-year period

Sagot :

facundobuzzetti

Answer:

The minimum price is $434,214.74.

Explanation:

Giving the following information:

Future Value= $1,000,000

Number of periods= 10 years

Discount rate= 8.73%

The minimum price of the prize is the present value of the payment. To calculate the present value, we need to use the following formula:

PV= FV /(1 + i)^n

PV= 1,000,000 / (1.087^10)

PV= $434,214.74

The minimum price is $434,214.74.

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