Justin Bieber has just won a lottery, which promise to pay the holder $50,000 a year for the next 20 years. Bieber is about to receive his first payment a year from now. The lottery is advertised as the Million Dollar Lottery because $1,000,000 = $50,000 x 20.

(a)Calculate the present value of the lottery if the interest rate is 8 percent.

(b)Do the value Bieber receive is the same as the amount promised today.

(5 mark)