Question

You have just received notification that you have won the $1 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 9 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

Answer:

$3692.135

Explanation:

Given:

Prize amount = $1 million = $1,000,000

Duration, n = 65 years

Discount rate, r = 9%

Now,

Future value = Present value × (1 + r )ⁿ

now,

Future value = amount won (since it will be given after 65 years)

therefore,

$1,000,000 = Present value × (1 + 0.09 )⁶⁵

or

Present value = $\frac{\ \textup{1,000,000}}{\textup{270.846}}$

or

Present value = $3692.135