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You have just received notification that you have won the $2 million first prize in the...

You have just received notification that you have won the $2 million first prize in the Centennial Lottery. However, the prize will be awarded on your 100th birthday (assuming you're around to collect), 65 years from now. What is the present value of your windfall if the appropriate discount rate is 7 percent?

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Expert Solution

Information provided:

Future value (FV)= $2,000,000

Time= 65 years

Interest rate= 7%

Formula for computing present value:

Present Value (PV)=FV/(1+r)^t

                                     = $2,000,000/ (1+0.07)^65

                                     = $2,000,000/ 81.2729

                                     = 24,608.4488.

Therefore, the present value of the windfall is $24,608.45.

In case of any query, kindly comment on the solution

jeff jeffy answered 2 months ago
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