Question

You just won the $114 million ultimate lotto jackpot. Your winnings will be paid as $3,800,000 per year for the next 30 years. If the appropriate interest rate is 7.1% what is the value of your windfall?

Answer 1

$46,684,511.77

Step-by-step explanation:

To determine the value of the windfall, we would first determine the future value of the windfall and then determine the present value

Future value = annuity x annuity factor

Annuity factor = {[(1+r)^n] - 1} / r

FV = P (1 + r) n

FV = Future value

P = Present value

R = interest rate

N = number of years

Annuity factor = [(1.071)^30 - 1] / 0.071 = 96.177470

FV = $3,800,000 x 96.177470 = 365,474,386

Present value = FV x ( 1 +r)^-n

365,474,386 x (1.071)^-30 = $46,684,511.77