(1.)You have just received notification that you have won the @2
million first prize in the Millennium Lottery. However, the prize will
be awarded on your 100th birthday (assuming you're alive to collect),
80 years from now. What is the present value of your windfall if the
appropriate discount rate is 14 percent?
(2.) You have $10,000 to deposit in Citibank. Citibank offers 12% per
year compounded quarterly. How much will your investment be worth in
10 years in Citibank?
(please show your work, and if possible show how it would be entered
into a financial calculator?)

Hi pheifer!!

For reference on the topics covered by these problems visit the
following page:
"Interest, Rent and Profit" by Erik Skaden:
http://www-class.unl.edu/econ212/ch19.htm

Thank you.


1.)You have just received notification that you have won the @2 
million first prize in the Millennium Lottery. However, the prize will
be awarded on your 100th birthday (assuming you're alive to collect),
80 years from now. What is the present value of your windfall if the 
appropriate discount rate is 14 percent?

If PV is the Present Value, FV is the future value, r is the discount
rate per period and n is the number of periods (in this case years) we
have:

PV = FV / (1 + r)^n =
   = $2,000,000 / (1 + 0.14)^80 =
   = $56.06 

----------------------------------------------------------

(2.) You have $10,000 to deposit in Citibank. Citibank offers 12% per
year compounded quarterly. How much will your investment be worth in 
10 years in Citibank?

If Citibank offers 12% per year compounded quarterly (3% per quarter)
we have the following number n of periods:
n = 10 years  x 4 quarters = 40 periods.

If PV is the Present Value, FV is the future value, r is the rate per
period and n is the number of periods we have:
FV = PV *(1 + r)^t =
   = $10,000 * (1 + 0.03)^40
   = $32,620.38

------------------------------------------------------

For help using Financial calculators visit:
"Using a Financial Calculator":
http://iit.ches.ua.edu/fincal/cal/calculator.html

And its Example pages:
"Texas Instruments BAII+"
http://iit.ches.ua.edu/fincal/cal/ba2.html

"Hewlett Packard 12C"
http://iit.ches.ua.edu/fincal/cal/hp12c.html

"Hewlett Packard 10B"
http://iit.ches.ua.edu/fincal/cal/hp10b.html


Hewlett Packard site has usage guides for educators & students for its
financial calculators, these pages will be very useful to you:
(From these pages you have also links to calculatorīs manuals and more
support information)
"HP 10bII":
http://www.hp.com/calculators/financial/10bII/educators.html

"HP 12c":
http://www.hp.com/calculators/financial/12c/educators.html

"HP 17bII+":
http://www.hp.com/calculators/financial/17bIIplus/educators.html

   

I hope this helps you. If you need a clarification and/or further
assistance on this topics, please post a request for an answer
clarification before rate this answer.

Best regards.
livioflores-ga

---

Clarification of Answer by livioflores-ga on 12 Oct 2003 01:02 PDT

When you look for reference on how to use your financial calculator to
solve these problems note that the first problem is a Present Value
calculation, and the second problem is a Future Value calculation.

Regards.
livioflores-ga