Finding present value of winnings

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Reference no: EM1311571

Finding present value of winnings.

The Caldwell Herald newspaper reported the following story:
Frank Ormsby of Caldwell is the states newest millionaire. By choosing the six winning numbers on last weeks state lottery, Mr. Ormsby has won the weeks grand prize totaling $1.6 million. The State Lottery Commission has indicated that Mr. Ormsby will receive his prize in 20 annual installments of $80,000 each.

a. If Mr. Ormsby can invest money at a 12% rate of return, what is the present value of his winnings?
b. Is it correct to say that Mr. Ormsby is the state newest millionaire? Explain your answer.

Reference no: EM1311571

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