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You just won the TVM Lottery. You will receive $1 million today plus another 10 annual...

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Finance

You just won the TVM Lottery. You will receive $1 million todayplus another 10 annual payments that increase by $375,000 per year.Thus, in one year, you receive $1.375 million. In two years, youget $1.75 million, and so on.

If the appropriate interest rate is 6.5 percent, what is thevalue of your winnings today?

Answer & Explanation Solved by verified expert
3.8 Ratings (374 Votes)
We can compute Total PV of all payments by adding PV of individual cash payment as PV C0 C1 1r 1 C2 1r 2 C n 1r n C0 C1 C2 Cn Cash payments in respective years r Rate per period 65 or 0065 Computation of annual cash payment Year Cash payment    See Answer
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You just won the TVM Lottery. You will receive $1 million todayplus another 10 annual payments that increase by $375,000 per year.Thus, in one year, you receive $1.375 million. In two years, youget $1.75 million, and so on.If the appropriate interest rate is 6.5 percent, what is thevalue of your winnings today?

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