Question
Mark has won a contest in which he will receive $10,000 at the end of each of the next 10 years and then $20,000 a year for the next 30 years after that. With an 8% discount rate, what is the present value of Mark's prize?
Answers
PV = 10000(1 - 1.08)^-10)/.08 + 20000(1 - 1.08^-30)/.08 (1.08)^-10
= 171391.45
or
pretend you are gettting 20,000 for 40 years - the 10,000 for the first 10 years
= 20000(1 - 1.08^-40)/.08 - 10000(1 - 1.08^-10)/.08
= 171391.45
= 171391.45
or
pretend you are gettting 20,000 for 40 years - the 10,000 for the first 10 years
= 20000(1 - 1.08^-40)/.08 - 10000(1 - 1.08^-10)/.08
= 171391.45
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