The present value of the lottery prize is $168,984.49($168,984 rounded to the nearest dollar amount)
What is the present value of all lottery annual cash flows that would last for 15 years?
The present value of the state lottery is today's equivalence of all future cash inflows, more like the cash prize of the lottery if paid as a lump sum today, which can be determined by discounting all future cash flows using the present value formula of a single cash flow provided below:
Note that the discount rate of 5% was omitted from the question
PV=FV/(1+r)^N
FV=each future cash flow
r=discount rate=5%
N=year of cash flow, 1 for year 1 cash flow, 2 for year 2 cash flow and so on
PV=$15,000/(1+5%)^1+$15,000/(1+5%)^2+$15,000/(1+5%)^3+$15,000/(1+5%)^4+$15,000/(1+5%)^5+$15,000/(1+5%)^6+$15,000/(1+5%)^7+$15,000/(1+5%)^8+$15,000/(1+5%)^9+$15,000/(1+5%)^10+$20,000/(1+5%)^11+$20,000/(1+5%)^12+$20,000/(1+5%)^13+$20,000/(1+5%)^14+$20,000/(1+5%)^15
PV=$168,984.49
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