Question

A major lottery advertises that it pays the winner $10 million. however this prize money is paid at the rate of $500,000 each year (with the first payment being immediate) for a total of 20 payments. what is the present value of this prize at 10% interest compounded annually

Answer 1

"The prize money given by the lottery company is $ 10 million.

The first premium is $ 500, 000 paid immediately.

Therefore, the balance to be paid in next 19 years is $ 9500,000.

The rate of compound interest is 10%.

Therefore the interest value after 19 years is 9500,000 (1 + 10/100) ^19 = 9500,000 X 0.1^19 – 9500,000 = 238592500-9500, 000 = 2290, 92500. The present value is 2290, 92500+ 9500,000 = 23,85,92500 million.

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