Problem 6-44 Calculating Present Values [LO1] You just won the TVM Lottery. You

Question

Problem 6-44 Calculating Present Values [LO1] You just won the TVM Lottery. You will receive $1 million today plus another 10 annual payments that increase by $580,000 per year. Thus, in one year, you receive $1.58 million. In two years you get $2.16 million, and so on. If the appropriate interest rate is 6.8 percent, what is the value of your winnings today? (Do not round intermediate calculations. Enter your answer in dollars, not milli dollars, and round your answer to 2 decimal places, e.g. 1,234,567.89.) Present value

Explanation / Answer

Particulars Today Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Payment           1,000,000        1,580,000        2,160,000        2,740,000        3,320,000        3,900,000        4,480,000        5,060,000        5,640,000        6,220,000        6,800,000 Discount rate 1 0.936329588 0.876713097 0.820892413 0.768625855 0.71968713 0.673864354 0.630959133 0.590785705 0.553170136 0.517949565 Present value     1,000,000.00 1,479,400.75 1,893,700.29 2,249,245.21 2,551,837.84 2,806,779.81 3,018,912.31 3,192,653.21 3,332,031.38 3,440,718.25 3,522,057.05 Total present value 28,487,336.09

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