The caldwell herald newspaper reported the following story: frank ormsby of caldwell is the state’s newest millionaire. by choosing the six winning numbers on last week’s state lottery, mr. ormsby has won the week’s grand prize totaling $1.5 million. the state lottery commission has indicated that mr. ormsby will receive his prize in 20 annual installments of $75,000 each. use excel or a financial calculator to solve. round answers to the nearest dollar. required: 1. if mr. ormsby can invest money at a 10% rate of return, what is the present value of his winnings?

The present value of Frank Ormsby's lottery winnings: $638,517

Explanation:

Please find the below for detailed calculations and explanations:

The present value of Frank Ormsby's winnings is the net present value of the annuity, in which equal annual payment of $75,000 will be paid in the next 20 years and the discount rate is the rate of return at 10%.

Thus, we apply the present value formula for determining present value of the annuity to calculate the present value of his winnings as followed:

PV = (C/i) x [ 1 - (1+i)^(-n)] = (75,000/0.1) x [1 - 1.1^(-20)] = $638,517

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