Present Value Analysis of the Available Option Based on the Cash Flows Flowing From a Lottery Option

Running head: FINANCIAL MANAGEMENT
Financial Management
Name of the Student:
Name of the University:
Author’s Note:

FINANCIAL MANAGEMENT1
Table of Contents
Question 1........................................................................................................................................2
Question 2........................................................................................................................................2
References........................................................................................................................................4

FINANCIAL MANAGEMENT2
Question 1
The present value analysis of the available option was done with the help of the given
available option whereby the cash flows flowing from a lottery option would be analysed with
the help of the annual compounded monthly discount rate of 9.38%, which was computed as
follows:
Annual Interest Rate
Monthly Compounding Annual
Rate 9%
Months in a Year 12
Monthly Interest Rate
0.75
%
Monthly Compounding
Annual Rate
9.38
%
Annual Effective Interest
Rate
N (In Years) 12
I (Interest Rate) 1%
PV -100
FV $109.38
EAR
9.3807
%
Present Value
Discount Rate 9.3807%
N (In Years) 26
PMT 423077
Present
Value (PV)
($4,453,79
3.24)
The present value of the equal annual amount was derived with the help of the equated
discount rate with the help of same the discounted cash flows were derived. On the other hand,
the compounding effect for the lump sum amount of $11 million would be compounded with the
help of 9.38%.