Question

You have just received notification that you have won the $1.4 million first prize in the Centennial Lottery. However, the prize will be awarded on your 100th birthday, 70 years from now. The appropriate discount rate is 8 percent. What is the present value of your winnings

Answer 1

Answer:

Present value = $6404.20

Explanation:

Data provided in the question :

Amount of the Centennial lottery prize won = $1.4 million = $1,400,000

Time after which the amount will be received, n = 70 years

Discount rate, r = 8%

Now,

the present values is given as:

$\textup{Present value}=\frac{\textup{Principle amount}}{(1+r)^n}$

on substituting the respective values, we get

$\textup{Present value}=\frac{\textup{ 1,400,000}}{(1+0.08)^70}$

or

Present value = $6404.20