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Problem:

On the way to Stop&Shop, you buy a lottery ticket and win $100,000. The catch is that the money will be paid to to you in two installments: $50,000 today, and $50,000 at the end of 5 years from now.

Required:

Question 1: Assuming an interest rate of 8%, what is the present value of your total lottery payments?

Question 2: Suppose that you invest the $50,000 winnings that you receive today and earn 8% annually for the next 5 years. What is the future value of your total lottery payments?

Note: Please describe comprehensively and provide step by step solution.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91169735

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