24 Jul WHAT IS THE PRESENT VALUE OF YOUR PRICE MONEY?
Hello I just solved this question but Im not sure if I did it correctly. I considered this a perp Show more Hello I just solved this question but Im not sure if I did it correctly. I considered this a perpetuity since it goes forever but other people in my class said they considered this an annuity since you cant live forever. Please let me know if I did this wrong and what I should be doing instead. Question: You won the set for life lottery which promises to pay you $1000 per month forever starting today. At the end of November of each year you collect a bonus payment of $1000 to make it easier to purchase presents for the holidays. To make calculations easier suppose that today is Jan 1st. You discount rate is 10% p.a. What is the present value of your price money? Here is what I did: For the November (yearly) bonus payment: PVo = (1000/0.1) = $10000 For the Monthly Payment: (10% p.a) / (12 months) = 0.83333% = 0.008333 PVo = (1000) / (0.008333) = $120000 Therefore the set for life lottery PV would be the addition of the two previous calculated Present Values. $120000 + $10000 = $130000 Show less
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