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Example from Powerpoint Slide 418
Time
Period
Cash Flow
PV
0
$8,000
$8,000.00
1
$4,000
$3,703.70
2
$4,000
$3,429.36
Total
$15,133.06
discount rate =
8%
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View Full Document Lottery Example  Comparison of Lump Sum to 26 year p
• $7,000,000 paid in 26 payments (over 25 ye
Present Value of Payment Received Today:
$3,628,451
Present Value of 26 Payments of $7,000,000/26 = $269,231 at 6.255%
(Note:
First payment is today and then each year for 25 years)
Time Period
Future Value
Present Value
0
$269,231
$269,231
1
$269,231
$253,382
2
$269,231
$238,466
3
$269,231
$224,428
4
$269,231
$211,216
5
$269,231
$198,782
Choice:
• $3,628,451 today
6
$269,231
$187,080
7
$269,231
$176,067
8
$269,231
$165,703
9
$269,231
$155,948
10
$269,231
$146,768
11
$269,231
$138,128
12
$269,231
$129,997
13
$269,231
$122,344
14
$269,231
$115,142
15
$269,231
$108,364
16
$269,231
$101,985
17
$269,231
$95,981
18
$269,231
$90,331
19
$269,231
$85,013
20
$269,231
$80,009
21
$269,231
$75,299
22
$269,231
$70,866
23
$269,231
$66,694
24
$269,231
$62,768
25
$269,231
$59,073
Total
$7,000,000
$3,629,064
int rate =
6.255%
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View Full Document payment stream
ears)
interest
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View Full Document Lottery Example  Comparison of Lump Sum to 20 year paym
Choice:
• $8,500,000 today
• $20,000,000 paid in 20 payments (over 19 yea
Present Value of 20 Payments of $1,000,000
(Note:
First payment is today and then each year for 19 y
Discount Rate =
7.00%
Time Period
Cash Flow
PV
0
$
$
1
$1,000,000
$934,579
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This note was uploaded on 08/30/2011 for the course MGF 301 taught by Professor Mohr during the Fall '08 term at SUNY Buffalo.
 Fall '08
 Mohr

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