Answer:
[tex]PW=\frac{10,000}{0.05-0.02}\\ PW=\$333,333.333[/tex]
Present value of lottery= $333,333.333
Explanation:
Given Data:
Initial Payment=$10,000
Rate at which payment grow=2%=0.02
Discount Rate=5%=0.05
Required:
Present value of lottery=?
Solution:
[tex]PW=\frac{Initial\ Payment}{r-g}[/tex]
where:
r is the discount rate
g is the growth rate
[tex]PW=\frac{10,000}{0.05-0.02}\\ PW=\$333,333.333[/tex]
Present value of lottery= $333,333.333
