John wins the lottery and has the following three payout options for after-tax prize money:
1)$56,000 per year at the end of each of the next six years
2)$300,000 (lump sum)now
3)$516,000 (lump sum)six years from now
The required rate of return is 9%.What is the present value if he selects the third option? Round to nearest whole dollar.
Present value of $1:
$$\begin{array} { | l | r | r | r | }
\hline & { 8 \% } &{ 9 \% } & 10 \% \
\hline 1 & 0.926 & 0.917 & 0.909 \
\hline 2 & 0.857 & 0.842 & 0.826 \
\hline 3 & 0.794 & 0.772 & 0.751 \
\hline 4 & 0.735 & 0.708 & 0.683 \
\hline 5 & 0.681 & 0.65 & 0.621 \
\hline 6 & 0.63 & 0.596 & 0.564 \
\hline 7 & 0.583 & 0.547 & 0.513 \
\hline
\end{array}$$

Question

John wins the lottery and has the following three payout options for after-tax prize money:
1)$56,000 per year at the end of each of the next six years
2)$300,000 (lump sum)now
3)$516,000 (lump sum)six years from now
The required rate of return is 9%.What is the present value if he selects the third option? Round to nearest whole dollar.
Present value of $1:
$$\begin{array} { | l | r | r | r | } 
\hline &  { 8 \% } &{ 9 \% } & 10 \% \
\hline 1 & 0.926 & 0.917 & 0.909 \
\hline 2 & 0.857 & 0.842 & 0.826 \
\hline 3 & 0.794 & 0.772 & 0.751 \
\hline 4 & 0.735 & 0.708 & 0.683 \
\hline 5 & 0.681 & 0.65 & 0.621 \
\hline 6 & 0.63 & 0.596 & 0.564 \
\hline 7 & 0.583 & 0.547 & 0.513 \
\hline
\end{array}$$

Quizplus · Accepted Answer

The present value of $1 six years from now at 9% is 0.596. Therefore, the present value of $516,000 six years from now is $516,000 x 0.596 = $307,536.

John Wins the Lottery and Has the Following Three Payout