Lucky Larry wins $5,000,000 in a state lottery. The standard way in which the state pays such lottery winnings is at a constant rate of $200,000 per year for 25 years. Round your answer to the nearest $10. If Lucky invests each payment from the state at 5% compounded continuously, what is the accumulated future value of the income stream? $ What is the accumulated present value of the income stream at 5%, compounded continuously? (This amount represents what the state has to invest at the start of its lottery payments, assuming the 5% interest rate holds.)

Lucky Larry wins $5,000,000 in a state lottery. The standard way in which the state pays such lottery winnings is at a constant rate of $200,000 per year for 25 years. Round your answer to the nearest $10. If Lucky invests each payment from the state at 5% compounded continuously, what is the accumulated future value of the income stream? $ What is the accumulated present value of the income stream at 5%, compounded continuously? (This amount represents what the state has to invest at the start of its lottery payments, assuming the 5% interest rate holds.)

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Assume that you just won the state lottery. Your prize can be taken either in the form of 100,000 at the end of each of the next 15 years or as a single amount of $1,000,000 paid immediately. If you expect to be able to earn 5% annually on your investments, ignoring taxes and other considerations, which alternative should you take? Why?
Suppose a state lottery prize is to be paid in 25 payments of $360,000 each at the end of each of the next 25 years. (a) What is the total of all payments received (the advertised value of the lottery prize)? (b) Instead of receiving annual payments, the winner opts to receive a single payment today equal to the present value of the prize. Find the amount of today's payment if: (Round your answer to the nearest cent.) interest is 8% $ interest is 12% $
Sima has won the Wisconsin lottery with a jackpot of $10,000,000. She will be paid out in 20 equal annual installments with the first payment made immediately. If she had the money now she could invest it in an account that generates 9% compounded annually. What is the present value of the stream of payments? Present value of the lottery winnings (round up to the nearest dollar):
Joan Lucky won the $44,000,000 lottery. She is to receive $1.3 million a year for the next 25 years plus an additional lum payment of $11.5 million after 25 years. The discount rate is 18 percent. What is the current value of her winnings? (Use a Financial calculator to arrive at the answer. Round the final answer nearest whole dollar.) Current Value $
The winner of a state lottery will receive $5,000 per week for the rest of her life. If the winner’s interest rate is 6.5% per year compounded weekly, what is the present worth of this jackpot?
Marcus has won a $6,000,000 state lottery. He can take his prize as either 15 yearly payments of $400,000 or a lump sum of $2,725,000. Which is the better option? Assume an interest rate of 12%.
You like to buy lottery tickets every week. The lottery pays an insurancecompany that pays the winner an annuity. If you win a $60,000,000 lotteryand elect to take an annuity, you get $3,000,000 per year at the beginningof each year for the next 20 years.a. How much must the state pay the insurance company if money can earn3 percent?b. How much interest is earned on this lump-sum payment over the 20 years?c. If you take the cash rather than the annuity, the state pays you $30,000,000in one lump sum today. You must pay 40 percent of this in taxes. If you arecurrently working and invest this money at 6 percent, how much moneywill you have in a mutual fund at the end of 20 years?d. Are you better off with the annuity, or should you take the cash? Explain.
Congratulations! You have just won a $40 million lottery and have electedto receive $2 million per year for 20 years. Assume that a 4 percent interestrate is used to evaluate the annuity and that you receive each payment atthe beginning of the year.a. What is the present value of the lottery?b. How much interest is earned on the present value to make the $2 millionper-year payment?
* The Powerball Lottery, worth $280 million, was won by a single individual. The winner was given two choices: receive 26 payments of $7 million each with the first payment to be made immediately and the rest to be made at the end of each of the next 25 years, or receive a single lump-sum payment now that would be equivalent to the 26 payments of $7 million each. If the state uses an interest rate of 4.5 % per year, calculate the amount of the lump sum payment.
the lottery commission wants to be able to withdraw $400,000 at the beginning of each year for twenty years to cover annual payments due to Randy who won 8 million. How much does the commission need to invest today in an account paying 3.6% compounded annually to provide these payments?
Melody won a $30 million lottery today. The payout is the following: Melody gets $1 million today and $1 million each year for the next 29 years. Suppose that the discount rate is 6%, how much money worth today for the lottery assuming federal tax rate is 25% and state tax is 8%?

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