Question

SavedYou have just received notification that you have won the $3.5 million first prize in theCentennial Lottery. However, the prize will be awarded on your 100th birthday (assumingyou're around to collect), 62 years from now. What is the present value of your windfall ifthe appropriate discount rate is 9 percent?Multiple ChoiceO$16,400.28

Answer 1

Given:

Prize = $3.5 million

Time = 62 years

Discount rate = 9%

Find-:

Present value

Explanation-:

The present value is:

$\text{ Present value }=\text{ Future value of prize }\times(1+\text{ interest rate\rparen}^{-\text{ Number of year}}$

The future value price is $3.5 million

$\text{ Present value}=3.5\times10^6(1+\frac{9}{100})^{-62}$

So, the present value is:

$\begin{gathered} \text{ Present value}=3500000\times(1+0.09)^{-62} \\ \\ =3500000\times(1.09)^{-62} \\ \\ =3500000\times4.781\times10^{-3} \\ \\ =16734.979 \end{gathered}$

So the present value is $16734.979.