Amanda won a lottery that would pay her $5000 in a year and $10,000 in two years.

[laila007]

[FONT=&quot]Amanda won a lottery that would pay her $5000 in a year and $10,000 in two years. If the lottery company had another option where she could get an upfront amount now and another $7000 in one year, calculate the upfront amount that she would receive now from the second option, assuming that money is worth 2% compounded semi-annually.[/FONT]

 

[Deleted member 4993]

Amanda won a lottery that would pay her $5000 in a year and $10,000 in two years. If the lottery company had another option where she could get an upfront amount now and another $7000 in one year, calculate the upfront amount that she would receive now from the second option, assuming that money is worth 2% compounded semi-annually.

What are your thoughts?

Please share your work with us ...even if you know it is wrong

If you are stuck at the beginning tell us and we'll start with the definitions.

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[stapel]

Amanda won a lottery that would pay her $5000 in a year and $10,000 in two years. If the lottery company had another option where she could get an upfront amount now and another $7000 in one year, calculate the upfront amount that she would receive now from the second option, assuming that money is worth 2% compounded semi-annually.

What formula(s) have they given you for this? How far have you gotten in applying that information? Where are you stuck?

Please be complete, including the definitions of the variables in the formula(s). Thank you!

 

[laila007]

My Calculations

This is what I did but I don't think it's right:

PV = 5,000 + 10,000 = $15,000
PV = 15,000 - 7,000 = $8,000
PV = $8,000, j = 2% = 0.02, m = 2 (semi-annually), t = 1 year
I = j/m = 0.02/2 = 0.01, n = m x t = 2 x 1 = 2

FV = PV(1+i)n = 8000(1 + 0.01)2 = $8161


If anyone could help me that would be great! Please & thank you

 

[laila007]

Confused...

Also have these answers:

pv of 2nd payout = ? rate = 0.02 , compounding = 2 , term = 1 , fv of 2nd payout = $7000
7000 = pv(1+(0.02/2))²
pv of 2nd payout = $6862.07
So,
Total payout - pv of 2nd payout = initial payout
$15000 - $6862.07 = $8137.93



[FONT=&quot]A = p(1 + r/n)^rt[/FONT]
[FONT=&quot]8000 = p(1 + 0.02/2)²⁽²⁾[/FONT]
[FONT=&quot]8000 = p(1 + 0.01)⁴[/FONT]
[FONT=&quot]8000 = p(1.01)⁴[/FONT]
[FONT=&quot]8000 ≈ p(1.0406)[/FONT]
[FONT=&quot]7687.84 ≈ p


I'm so confused...[/FONT]