Question

You have just recieved notification that you have won the $2 million first prize in the centennial lottery. However, the prize will be awarded on your 100th birthday, 76 years from now.

Requried:
What is the present value of your windfall if the appropriate discount rate is 8%?

Answer 1

$5,765.35

Step-by-step explanation:

Preparation of the present value of your windfall if the appropriate discount rate is 8%

To find the present value we are going to use this formula

PV = FV / (1 + r)^t

Where,

FV=$2,000,000

r=8%

t=76

Let plug in the formula

PV = 2,000,000 / (1 + .08)^⁷⁶

PV = $2,000,000 / (1.98)^⁷⁶

PV=$2,000,000/346.90

PV=$5,765.35

Therefore the present value will be $5,765.35