On January 1 you win $800,000 in the state lottery. The $800,000 prize will be paid in equal installments of $80,000 over 10 years. The payments will be made on December 31 of each year, beginning on December 31. If the current interest rate is 8%, determine the present value of your winnings

On January 1 you win $800,000 in the state lottery. The $800,000 prize will be paid in equal installments of $80,000 over 10 years. The payments will be made on December 31 of each year, beginning on December 31. If the current interest rate is 8%, determine the present value of your winnings

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

ChapterM: Time Value Of Money Module

Section: Chapter Questions

Problem 11RE: Samuel Ames owes 20,000 to a friend. He wants to know how much he would have to pay if he paid the...

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Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

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