Question

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), 70 years from now.

  

What is the present value of your windfall if the appropriate discount rate is 8 percent? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.)

Answer 1

PV of 2000000 is $9148.86

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So in this case we need to find the PV of the lottery amount that will be received after 70 years from now.

If the amount to be received in the future is FV, rate of interest is r and time period is n then PV of that amount can be calculated using below formula

PV = FV/ (1+r)^n

Where,

FV = $2000000

r = 8%

n = 70

Let's put all the values in the formula to find PV

PV = 2000000/ (1 + 0.08) ^70

       = 2000000/ (1.08) ^70

       = 2000000/ 218.6064

       = 9148.86

So PV of $2000000 is $9148.86

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Hope that helps.

Feel free to comment if you need further assistance J