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Calculate the present value of the lottery

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Reference no: EM133015519

Question - Justin Bieber has just won a lottery, which promise to pay the holder $50,000 a year for the next 20 years. Bieber is about to receive his first payment a year from now. The lottery is advertised as the Million Dollar Lottery because $1,000,000 = $50,000 x 20.

Required -

(a) Calculate the present value of the lottery if the interest rate is 8 percent.

(b) Do the value Bieber receive is the same as the amount promised today.

Reference no: EM133015519

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