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1. Suppose you won $2 million in a lottery and it is to be paid in 25...

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Finance

1.
Suppose you won $2 million in a lottery and it is to be paidin 25 equal annual installments starting today. An alternative tothe installment plan is to receive a lump sum payment today. If theapplicable discount rate was 7% per year, how large would the lumpsum payment have to be? Round to the nearest cent.

2.
If you invest $86 per month (starting next month) every monthfor 38 years, and you can earn 10% per year (compounded monthly),how much will you have at the end of 38 years? Round to the nearestcent.

Answer & Explanation Solved by verified expert
4.2 Ratings (755 Votes)
1 If 2 million is to be paid in 25 equal annual instalment each instalment would be 80000 being 2 million 25 months The present value of annuity for 24 years I take 24 instead of 25 because the first instalment will be given NOW and hence no need to apply discount at    See Answer
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