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What is the present value of the prize

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(a) You decide you would like to buy a retirement home on the Maine seacoast when you say goodbye to the working world in 40 years. The house now costs $500,000 and should go up 8.5% per year. What will be the cost of the house when you retire?

(b) The prize in last year's Vegas lottery was estimated to be worth $60 million. If you were lucky enough to win, the state will pay you $2.50 million per year over the next 15 years. Assume that the first installment is received at the end of the year.

(i) If interest rates are 8 percent compounded annually, what is the present value of the prize?

(ii) If interest rates are 8 percent compounded annually, what is the future value after 20 years?

(iii) How would your answers change if the payments were received at the beginning of the year?

Reference no: EM132921958

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