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You just won the $100 million Ultimate Lotto jackpot. Your winnings will be paid as $4,000,000...

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Operations Management


You just won the $100 million Ultimate Lotto jackpot. Your winningswill be paid as $4,000,000 per year for the next 25 years. If theappropriate interest rate is 7.3 percent, what is the value of yourwindfall?

Answer & Explanation Solved by verified expert
3.6 Ratings (457 Votes)

SOLUTION:

Below table shows the total amount of windfall i.e Jackpot amunt + Interest earned

Year

Winning Payout

(a)

Cumulative Balance

(b)

Interest Rate

(c)

Interest Amount

(b*c)
1 4000000 4000000 7.30% 292000
2 4000000 8000000 7.30% 584000
3 4000000 12000000 7.30% 876000
4 4000000 16000000 7.30% 1168000
5 4000000 20000000 7.30% 1460000
6 4000000 24000000 7.30% 1752000
7 4000000 28000000 7.30% 2044000
8 4000000 32000000 7.30% 2336000
9 4000000 36000000 7.30% 2628000
10 4000000 40000000 7.30% 2920000
11 4000000 44000000 7.30% 3212000
12 4000000 48000000 7.30% 3504000
13 4000000 52000000 7.30% 3796000
14 4000000 56000000 7.30% 4088000
15 4000000 60000000 7.30% 4380000
16 4000000 64000000 7.30% 4672000
17 4000000 68000000 7.30% 4964000
18 4000000 72000000 7.30% 5256000
19 4000000 76000000 7.30% 5548000
20 4000000 80000000 7.30% 5840000
21 4000000 84000000 7.30% 6132000
22 4000000 88000000 7.30% 6424000
23 4000000 92000000 7.30% 6716000
24 4000000 96000000 7.30% 7008000
25 4000000 100000000 7.30% 7300000
Total 100000000 94900000

Total Windfall amount = Jackpot Amount + Total Interest earned = 100,000,000 + 94,900,000 = 194,900,000
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