Question

You just won the $85 million Ultimate Lotto jackpot. Your winnings will be paid as $3,400,000 per year for the next 25 years. If the appropriate interest rate is 6.7 percent, what is the value of your windfall?

Answer 1

Answer:

PV= $40,716,437.34

Explanation:

Giving the following information:

Cash flow= $3,400,000 per year

Number of years= 25

Interest rate= 6.7%

To calculate the present value, first, we will calculate the future value:

FV= {A*[(1+i)^n-1]}/i

A= annual cash flow

FV= {3,400,000*[(1.067^25) - 1]} / 0.067

FV= 206,006,183.4

Now, the present value:

PV= FV/(1+i)^n

PV= 206,006,183.4/ (1.067^25)

PV= $40,716,437.34