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Your best friend won the Washington State Lottery and has been promised by the state annual payments of $300,000 forever, starting two months from today.
Your best friend won the Washington State Lottery and has been promised by the state annual payments of $300,000 forever, starting two months from today. Currently, the risk-free rate of interest is 0.7%/year, the market rate on Washington State Bonds is 1.8%/year, and the expected return of the stock market is 7%/year. Provide an equation, including all of the inputs, to calculate the present value of the expected future cash payments. Explain how you determined the appropriate discount rate.
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