Question

You just won the $100 million Ultimate Lotto jackpot. Your winnings will be paid as $4,000,000 per year for the next 25 years. If the appropriate interest rate is 7.3 percent, what is the value of your windfall?

Answer 1

SOLUTION:

Below table shows the total amount of windfall i.e Jackpot amunt + Interest earned

Year	Winning Payout (a)	Cumulative Balance (b)	Interest Rate (c)	Interest Amount (b*c)
1	4000000	4000000	7.30%	292000
2	4000000	8000000	7.30%	584000
3	4000000	12000000	7.30%	876000
4	4000000	16000000	7.30%	1168000
5	4000000	20000000	7.30%	1460000
6	4000000	24000000	7.30%	1752000
7	4000000	28000000	7.30%	2044000
8	4000000	32000000	7.30%	2336000
9	4000000	36000000	7.30%	2628000
10	4000000	40000000	7.30%	2920000
11	4000000	44000000	7.30%	3212000
12	4000000	48000000	7.30%	3504000
13	4000000	52000000	7.30%	3796000
14	4000000	56000000	7.30%	4088000
15	4000000	60000000	7.30%	4380000
16	4000000	64000000	7.30%	4672000
17	4000000	68000000	7.30%	4964000
18	4000000	72000000	7.30%	5256000
19	4000000	76000000	7.30%	5548000
20	4000000	80000000	7.30%	5840000
21	4000000	84000000	7.30%	6132000
22	4000000	88000000	7.30%	6424000
23	4000000	92000000	7.30%	6716000
24	4000000	96000000	7.30%	7008000
25	4000000	100000000	7.30%	7300000
Total	100000000			94900000

Total Windfall amount = Jackpot Amount + Total Interest earned = 100,000,000 + 94,900,000 = 194,900,000