Question

You have just received notification that you have won the $2.12 million first prize in the Centennial Lottery. However, the prize will be awarded on your 100th birthday (assuming you’re around to collect), 68 years from now. What is the present value of your windfall if the appropriate discount rate is 9 percent? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)

Answer 1

Answer:

• $6,044.13

Explanation:

The present value formula is:

$Present\text{ }value=\dfrac{Future\text{ }value}{(1+r)^n}$

Assuming annual compounded interest, r = 9% = 0.09 and n = 68 years.

Substituting and computing:

    $Present\text{ }value=\dfrac{\ 2,120,000}{(1+0.09)^{68}}=\ 6,044.13$