Homework SourseYou have just won the lottery You will receive 2540000 today
You have just won the lottery. You will receive $2,540,000 today, and then receive 40 payments of $1,270,000 These payments will start one year from now and will be paid every six months. A representative from Greenleaf Investments has offered to purchase all the payments from you for $25 million. The interest rate is an APR of 8 percent compounded daily. Assume there are 12 months in a year, each with 30 days.
What is the present value of the cash flows from your lottery winnings? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
| You have just won the lottery. You will receive $2,540,000 today, and then receive 40 payments of $1,270,000 These payments will start one year from now and will be paid every six months. A representative from Greenleaf Investments has offered to purchase all the payments from you for $25 million. The interest rate is an APR of 8 percent compounded daily. Assume there are 12 months in a year, each with 30 days. |
Solution
Present Value of cash flow from lottery winnings=2540000+1270000/(1+8%/30)^360+1270000/(1+8%/30)^540+1270000/(1+8%/30)^720......
=2540000+1270000/(1+8%/30)^360*(1-1/(1+8%/30)^(180*40))/(1-1/(1+8%/30)^(180))
=3,818,541.566
