Answer:
Present Value= $9,003,586.40
Explanation:
Giving the following information:
You have just won the lottery and will receive $1,000,000 in one year. You will receive payments for 35 years and the payments will increase by 3.4 percent per year. The appropriate discount rate is 7.4 percent.
I will assume that 1 million is the first payment of 35.
First, we will calculate the final value. To do this, we need to sum the growing rate to the interest rate.
FV= {A*[(1+i)^n-1]}/i
A= annual deposit= 1,000,000
i= 0.074 + 0.034= 0.108
n=35
FV= {1,000,000*[(1.108^35)-1]}/0.108= $326,067,227.1
Now, we can calculate the present value:
PV= FV/ (1+i)^n
PV= 326,067,227.1/ 1.108^35= $9,003,586.40
