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You won the lottery when the jackpot was $3,300,000 (annual payments of $165,000 paid for 20 years). Your choice is to take the annual payments for 20 years or take the lump sum payout today. The lottery administration uses a 4% interest rate. What is the value of the lump sum payout

Sagot :

facundobuzzetti

Answer:

Lump sum= $2,242,403.85

Explanation:

First, we need to calculate the future value of the annual payments using the following formula:

FV= {A*[(1+i)^n-1]}/i

A= annual payment

FV= {165,000*[(1.04^20) - 1]} / 0.04

FV= $4,913,382.97

Now, the lump sum is the present value of the annual payments:

PV= FV / (1 + i)^n

PV= 4,913,382.97 / (1.04^20)

PV= $2,242,403.85

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