You Won the Lottery,and the Jackpot Was $12,000,000

question 106

Essay

You won the lottery,and the jackpot was $12,000,000.You can either receive the $12,000,000 in equal installments over 20 years,or you can receive a lump sum today.The amount of the lump sum you'll receive today is based on the present value of the equal installment payments.
a.What is the present value of the lottery winnings taken in equal installments over 20 years at 8% interest?
b.What is the present value of the lottery winnings taken in equal installments over 20 years at 10% interest?
c.Which interest rate yields the greatest amount of cash today?

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Definitions:

Paid-in Capital

The total amount of money and other assets that shareholders have given a company in exchange for shares of stock.

Stockholders' Equity Section

The portion of the balance sheet that represents the ownership interest of shareholders in a company.

Date of Record

The specific date on which a company determines the eligible shareholders for receiving dividends or other corporate distributions.

Stock Dividend

A dividend payment made in the form of additional shares rather than cash, increasing the total number of shares owned by shareholders.