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You have just won the lottery and will receive $560,000 in one year. You will receive payments for 22 years, and the payments will increase 3 percent per year. If the appropriate discount rate is 10 percent, what is the present value of your winnings?

Respuesta :

jepessoa

Answer:

$6,116,915

Explanation:

to solve this question you can use an excel spreadsheet to determine the 22 payments. Just type 560000 in the first cell and the second cell = A1 * 1.03, then you drag down until the 22th cell.

Once you have completed the 22 cells, you just go to financial formulas and look for NPV and enter 10% rate and select the 22 cells.

=NPV(10%,560000,...1041765) = $6,116,915

The NPV function actually doesn't give you the NPV it only calculates the present value of the cash flows.

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